A JP Morgan report analysed more than 7000 earnings reports to track commentary relating to trade tariffs.
The US-China trade war has again moved to centre stage as investors learned next year’s corporate earnings could be hard hit.
A JP Morgan report used text mining tools to analyse more than 7000 earnings reports to track commentary relating to trade tariffs, tax reform, input costs, shareholder returns and investment spending.
It found most companies are more focused on trade conflict than on the December tax revamp. Two-thirds of industrial companies and staples and more than half of materials companies mentioned trade risk on earnings calls.
The report estimates that the initial round of tariffs – China and the US have imposed tariffs on $US50 billon of imports from each other – have so far had only a roughly $US1 impact on 2018 per-share earnings in aggregate, out of roughly $US30 EPS growth expected for the year.
However, “the full-year EPS headwind could increase to $US8-10 under a more restrictive/severe trade scenario, which would result in significant negative revision to forward EPS estimates,” the report says.
Stocks on Wall Street posted a late rally to end the week mostly higher for a fifth consecutive day, led by gains in the financial and energy sectors.
The market dipped on unconfirmed news that President Donald Trump had instructed aides to proceed with tariffs on about $US200 billion more in Chinese products.
The Dow Jones Industrial Average gained less than 0.1% to 26,154.67 and the S&P 500 rose less than 0.1% to 2,904.97. The Nasdaq Composite Index slipped less than 0.1% to 8,010.04 but was up for the week.
“When the headlines hit, the knee-jerk reaction in the market is to either sell off or gain immediately,” Prudential Financial chief market strategist Quincy Krosby told Bloomberg.
“The president has had a couple of tweets suggesting he’s in no hurry to craft an agreement but, despite this, talks are apparently going to resume. And the question will be whether or not that leads to more negotiations.”
Meanwhile, the trade war is having an effect in China. Investment in factories, railways and other projects so far this year increased at its slowest pace in more than a quarter-century, pointing to challenges in government efforts to arrest an economic slowdown.
In the week ahead, data will be released on US existing home sales. They have fallen for four straight months and remain more than 25% below its pre-GFC peak 10 years ago. The number of homes for sale is stuck near a record low and inventory growth has been negative on a year-over-year basis every month for more than three years.
UK retail sales data will likely be disappointing. Economists say the summer bounce won’t last and figures from the British Retail Consortium last week showed shoppers had shunned the stores during the hot weather, apparently in favour of pubs.
More tariffs planned
Stocks finished higher last week in Europe and Asia amid optimism for US-China trade talks and action by Turkey and Russia to support their currencies that helped foster a positive mood.
Miners and carmakers led the 0.4% advance in the Stoxx Europe 600 Index. Germany’s DAX Index edged up 0.6%, France’s CACX 40 added 0.5% and the UK’s FTSE 100 gained 0.3%. Most Asian benchmarks extended their rebound from the worst run of losses in 16 years.
The US dollar strengthened after the 10-year treasury note yield briefly climbed past 3%, closing 3.4 basis points up at 2.911%, its highest in four weeks. The two-year note yield also climbed 3.7 points to 2.678%.
The August jobs report showed further growth in employment and higher wages, which have risen 2.9% annually and the fastest since 2009.
Oil posted its third straight weekly advance as traders keep watch on the impact of Hurricane Florence. West Texas Intermediate crude futures rose 0.6%% to $US68.99 a barrel. Brent, the global benchmark, fell less than 0.1% to $US78.09. December gold futures dropped 0.6% to $US1201.10 an ounce, a 70USc rise over the week.
