Trade War Tough Talk, Airlines Get Hit, Libya Disrupts Oil Market
Global stock indexes are sinking Wednesday after the Trump administration released a list of $200 billion in goods that could be hit with tariffs and China said it would retaliate. The dollar is climbing and oil prices are plunging. Industrial and materials companies are also falling.
KEEPING SCORE: The S&P 500 index lost 20 points, or 0.7 percent, to 2,774. The Dow Jones Industrial Average dropped 219 points, or 0.9 percent, to 24,700. The Nasdaq composite fell 42 points, or 0.5 percent, to 7,716. The Russell 2000, an index of smaller and more U.S.-focused companies, gave up 12 points, or 0.7 percent, to 1,683.
The S&P 500 had risen for four days in a row and it closed at a five-month high Tuesday.
TARIFF THREATS: The Trump administration proposed a 10 percent tax on imported items including vacuum cleaners, furniture and car and bicycle parts, but not U.S.-branded smartphones and laptops. It is scheduled to make a decision on the potential tariffs after Aug. 31.
China’s government said it will take “firm and forceful measures” if the new tariffs are enacted. Chipmakers, which make large portions of their sales in China, took some of the worst losses. Nvidia fell 2 percent to $248.10 and Micron Technology lost 2.6 percent to $54.28.
Among industrials, Caterpillar lost 3.1 percent to $136.84 and farm equipment maker Deere lost 2.1 percent to $141.54.
THE QUOTE: Jack Ablin, chief investment officer for Cresset Wealth Advisors, said the tariffs threaten to slow the global economy by raising costs for consumers and making businesses less productive.
“When you start adding all of that together, you end up with typically higher inflation and low productivity,” he said. “Higher inflation tends to rob consumers of their income and lower productivity tends to rob companies of their profits.”
WHAT NEXT? On Friday the U.S. and China put 25 percent taxes on $34 billion in imports and President Donald Trump has said nearly all imports from China, more than $500 billion in goods, could be taxed. China imported only $130 billion in goods from the U.S. last year but could retaliate through other means including regulatory moves and investigations of U.S. companies.
Indexes in Europe and Asia took steeper losses as investors worried the worsening trade dispute will hamper the growth of the global economy.
The trade dispute stems from Washington’s complaint that Beijing steals or pressures companies to hand over technology and concerns that plans for state-led development of Chinese champions in robots and other fields might erode American industrial leadership.
ENERGY: Oil prices fell after Libya said it will start exporting oil again. Benchmark U.S. crude fell 5 percent to $70.38 a barrel in New York. Brent crude, used to price international oils, plunged 6.9 percent to $73.40 a barrel in London.
Chevron sagged 3.3 percent to $123.39 and ConocoPhillips fell 2.6 percent to $69.88.
OVERSEAS: France’s CAC 40 and the DAX in Germany both lost 1.5 percent. Britain’s FTSE 100 index dropped 1.3 percent.
Japan’s benchmark Nikkei 225 fell 1.2 percent and the South Korean Kospi lost 0.6 percent while Hong Kong’s Hang Seng shed 1.3 percent.
GROUNDED: Airlines took sharp losses after American said it expects slower fare growth in the U.S. American Airlines slumped 7.5 percent to $36.19 and United Continental slid 3.3 percent to $68.98.
PRICES RISING: The Labor Department said wholesale prices kept rising in June. Excluding food and gas prices, which can be volatile, the department’s index of producer prices has risen 2.8 percent over the last year. That’s the fastest pace in six years and a sign inflation is picking up after years of weakness.
Investors have worried that the Federal Reserve will raise interest rates more quickly as inflation increases. The Fed wants inflation to stay at around 2 percent, but it suggested recently that it won’t act too quickly if inflation goes above the 2 percent mark.
REACH FOR THE SKY: Twenty-First Century Fox raised its offer for European pay TV service Sky. Fox already owns 39 percent of Sky and wants to buy the rest, but rival Comcast has stepped in with its own bid. Fox says the new offer values Sky at $32.5 billion.
Fox lost 3.7 percent to $47.93. In the U.K., Sky stock fell 0.5 percent.
BONDS: Bond prices ticked higher. The yield on the 10-year Treasury note fell to 2.84 percent from 2.87 percent.
The dip in bond yields helped utility companies make small gains. Utility companies tend to pay large dividends, so investors who want income often buy them when bond yields fall. Real estate investment trusts, which also pay large dividends, fell less than the rest of the market.
OTHER COMMODITIES: Gold lost 0.9 percent to $1,244.40 an ounce. In recent days gold has traded at its lowest price since early 2017. Silver fell 1.7 percent to $15.82 an ounce. Copper skidded 3.4 percent to $2.74 a pound.
Wholesale gasoline fell 4.6 percent to $2.06 a gallon. Heating oil sank 5.4 percent to $2.10 a gallon. Natural gas rose 1.5 percent to $2.83 per 1,000 cubic feet.
CURRENCIES: The dollar rose sharply against the Japanese currency, increasing to 112.04 yen from 111.28 yen. The euro fell to $1.1674 from $1.1745.
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