The positive effects of the second quarter reporting season are wearing off.
Global trade tensions have moved back into focus for investors as the US reporting season winds down.
China and the US launched a fresh round of tariffs on $US16 billion in each other’s goods, punishing trade-sensitive shares of manufacturers and materials companies.
Meanwhile, top-level talks are continuing in Washington between US and Chinese officials.
The additional duties affect Chinese-made chemicals, machinery, tractor parts and US-produced fishmeal, industrial lubricants, engines and trucks.
In other developments, the South African currency dropped as President Donald Trump tweeted on the forced appropriation of farmland while Saudi Arabia denied reports it had abandoned the Aramco float.
Negative session
On Wall Street, stock indexes were negative for the entire session. The Dow Jones Industrial Average skidded 76.62 points, or 0.3%, to 25,656.98, the S&P 500 fell 0.2% to 2856.98 and the Nasdaq Composite declined 0.1% to 7878.46.
The positive effects of the second quarter reporting season are wearing off with reports in from more than 95% of the broad index.
Mining companies and machinery makers stumbled the most. Freeport-McMoRan declined 2.5% and steel manufacturer Nucor slid 2.3%.
Caterpillar, a Dow component, slid 2%. Stanley Black & Decker, which last month said tariffs would increase costs by about $US35 million, fell 1.9%.
Sears slumped 5.9% after it said it would close 46 more Kmart and Sears stores as its bricks-and-mortar business model comes under increasing pressure. The stock is down 69% year to date.
“A solid US economy is keeping us up,” Northwestern Mutual Wealth Management chief investment strategist Brent Schutte says. “But it’s at a lesser pace with concerns like trade and China weighing on investors.”
Trade tensions have risen to the top of the US Federal Reserve’s list of concerns, according to just-released minutes from its latest meeting. Officials worry a prolonged dispute would harm business investment, sentiment and hiring, as well as cut into the purchasing power of US households.
Bond yields fall
US government bonds edged higher after various economic reports delivered a mixed message. The yield on the benchmark 10-year Treasury note fell to 2.819% from 2.823% on Wednesday.
Yields rose briefly after the Labour Department said the number of Americans filing applications for new unemployment benefits fell last week for the third straight week. Initial jobless claims dropped by 2000 to a lower than expected and seasonally adjusted 210,000.
The US yield curve – the difference between long and short-term rates – is at its lowest in 11 years. Investors are hoping for more clarity on the central bank’s monetary path, and the potential impact on emerging markets, from speakers at the annual Jackson Hole symposium.
Federal Reserve chairman Jerome Powell’s Friday speech is expected to be the highlight.
Oil prices were mixed as investors awaited an indication of whether the US-China trade talks would yield progress.
US crude was little changed at $US67.88 a barrel while Brent crude, the global oil benchmark, was down 0.1% to $US74.73 a barrel.
“If a trade war would escalate it would start to affect global growth, and therefore global demand growth, which would lead to lower oil prices," ABN Amro senior energy economist Hans van Cleef says.
Aramco float still on
Saudi Arabia says it remains committed to listing its national oil company at some point in the future. In a statement, Energy Minister Khalid al-Falih, who is also Aramco chairman, said this would occur when market conditions were“optimum” and once it had completed the multibillion-dollar acquisition of a state-owned chemicals firm.
In South Africa, the rand fell 1.3% against the US dollar after Mr Trump referenced a report by Fox News host Tucker Carlson attacking South African plans to redistribute more farmland from white to black citizens.
The tweet suggested the US government should take a more critical stance and asked Secretary of State Mike Pompeo to study the issue.
Like Turkey, whose currency slumped on a Trump tweet, the South African economy is heavily dependent on overseas borrowings, making its economy vulnerable to any loss of investor confidence and a weak currency.
Trump and the market
At home, Mr Trump generated more headlines when he commented on threats to impeach him amid the mounting legal woes of his associates.
Former Trump campaign chairman Paul Manafort was found guilty on eight charges including tax fraud and the president’s former lawyer, Michael Cohen said he violated campaign finance law at Trump’s direction.
“I’ll tell you what, if I ever got impeached, I think the market would crash,” Mr Trump said in an interview on Fox News.
Market Realist chief executive JP Gravitt rules out any impact on the market.
For stocks to sell off on impeachment fears, investors would “have to suppose that Trump is responsible for everything good in the market to suppose that the opposite would be true, and second we would have to know with a capital K that he will be gone and when any changes would be made to reverse his policies,” he says.
In other international markets, the Stoxx Europe 600 fell 0.2%. France’s CAC 40 eased 0.02%, Germany’s DAX fell 0.2% and the UK’s FTSE 100 slid 0.15%.
In Asia, Japan’s Nikkei Stock Average ended up 0.2%, the Shanghai Composite rose 0.4%, while Hong Kong’s Hang Seng fell 0.4%.
