- Wall Street finished the day in a sea of red on Thursday on news wires that U.S. President Donald Trump planning to move ahead with tariffs on China as soon as next week, risking a further escalation in the U.S.-China trade war.
At the same time, there appears to be some EM contagion risk making its way through to US markets with the latest episode in the saga involving a further 8% drop in the Argentinean peso and the Central Bank ramping up rates to 60% to combat a market intent on pushing the currency over the edge.
The Dow Jones Industrial Average dropped about 0.53%, for the first loss since last Friday, while S&P 500 fell 0.44%, snapping a four-session winning streak. The Nasdaq Composite lost about 0.26% also breaking its four-session winning streak.
Just at the trade war dust looked to be settling, with the year-long talks between Canada, Mexico and the US looking to conclude soon with a trilateral agreement, Trump kicked it all back up again on Thursday and was reported to be planning to move ahead with tariffs on $200 billion in Chinese imports as soon as a public comment period concludes next week, Bloomberg reported, citing six people familiar with the matter. Markets are waiting for confirmation of his final decision – but the real risk here is that Beijing had previously vowed to retaliate with countermeasures, so any glimmers of hope that had existed over a trade war truce will soon be forgotten, and that is potentially bullish for the dollar and even more problematic on the emerging market front. China threatened in July to impose duties on U.S. products worth more than $60 billion if the Trump administration followed through on threats to impose harsher tariffs on $200 billion of Chinese goods.
Meanwhile, Industrial heavyweights such as 3M Boeing and Caterpillar all of which have huge exposure to China, fell on the headlines. Corporate earnings, meanwhile, which may have helped to offset some investor concerns over trade were mixed. On the data front, the strength of the U.S. economy shines on with inflation meeting the Fed’s target, while consumer spending remains solid. This is following a stronger than expected GDP print on Wedesnday and stronger consumer confidence data the previous day.
DJIA levels
Valeria Bednarik, chief analyst at FXStreet explained that in the daily chart, the Dow’s decline seems corrective as it continues developing well above bullish moving averages:
“Technical indicators have eased from near overbought levels, now heading marginally lower far above their midlines. Shorter term, and according to the 4 hours chart, however, the risk is skewed to the downside, as the index settled below its 20 SMA, while technical indicators entered negative territory but losing their bearish strength at the end of the day.”
Support levels: 25,961 25,921 25,872
Resistance levels: 26,033 26,087 26,135
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