By William Watts and Chris Matthews, MarketWatch
Trump 'orders' U.S. firms to look for alternatives to China
after Beijing imposes retaliatory tariffs
Stocks ended sharply lower Friday as the U.S.-China trade war
intensified further, after President Donald Trump said he's
ordering American companies to start looking for "an alternative to
China," while readying additional measures after Beijing imposed
retaliatory tariffs on imports of U.S. goods.
Early in the session, major indexes flipped between modest gains
and losses after Federal Reserve Chairman Jerome Powell left the
door open for another interest rate cut in September in a widely
anticipated speech in Jackson Hole, Wyoming.
How are the major benchmarks faring?
Stocks extended declines ahead of the closing bell, with the Dow
off more than 700 points at its session low. In the end, the Dow
Jones Industrial Average closed with a loss of 623.34 points, or
2.4%, at 25,628.90, while the S&P 500 index dropped 75.84
points, or 2.6%, to finish at 2,847.11. The Nasdaq Composite Index
shed 239.62 points to end at 7,751.77, a loss of 3%.
The drop left the major indexes with their fourth consecutive
weekly loss, with the Dow down 1% since last Friday, while the
S&P 500 saw a 1.4% drop and the Nasdaq declining 1.8%.
What's driving the market?
Trouble kicked off ahead of Friday's open, with China announcing
new tariffs
(http://gss.mof.gov.cn/zhengwuxinxi/gongzuodongtai/201908/t20190823_3372938.html)
of 5% and 10% on $75 billion in U.S. imports, set to go into effect
in two tranches, on Sept. 1 and Dec. 15, respectively. The Chinese
government said that the move was in response to the Trump
administration's plans to institute 10% tariffs on $300 billion in
Chinese imports, also in two stages and on the same dates,
announced earlier in August.
See:Escalation in U.S.-China trade war threatens global economy,
poses Trump re-election risk
(http://www.marketwatch.com/story/escalation-in-us-china-trade-war-threatens-global-economy-poses-trump-reelection-risk-2019-08-23)
The move drew a furious response from Trump, who tweeted that he
had "hereby ordered" U.S. companies "to immediately start looking
for an alternative to China." While it wasn't clear what legal
authority Trump might have to force businesses to act, analysts
said the shift in rhetoric raised alarms over the potential impact
on the global economy.
"We always see a selloff when we escalate tensions," said Art
Hogan, chief market strategist for National Securities, in a phone
interview. "I would argue that this recent escalation is a
different flavor of retaliation when you 'hereby order' companies
to stop doing business."
Market moves were also likely amplified by thin trading
conditions typical of a Friday in August, Hogan said.
Trump also blasted Powell in a tweet for apparently not sounding
a more dovish tone about monetary policy in his Jackson Hole
speech:
(https://twitter.com/realDonaldTrump/status/1164914610836783104)
The president branded Powell an "enemy," taking the long-running
tensions between the White House and the Federal Reserve -- a
traditionally adversarial relationship -- "to a whole new level,"
Hogan said.
Read:Trump blasts Powell and Xi as 'enemies' of U.S. as Fed
fight, trade war heat up
(http://www.marketwatch.com/story/trump-blasts-powell-and-xi-as-enemies-of-us-as-fed-fight-trade-war-heat-up-2019-08-23)
In the speech, Powell was seen leaving the door open for another
interest rate cut at the central bank's next meeting Sept. 17-18,
saying, "We have seen further evidence of a global slowdown," since
the Fed's last meeting in July.
At the same time, he said "the U.S. economy has continued to
perform well overall" while " inflation seems to be moving closer
to 2%," the Fed's goal for annual inflation. Low inflation was a
main justification for cutting rates last month.
"It's not too surprising that he was vague, and intentionally
so," said Randy Frederick, vice president of active trading
strategies and derivatives at Charles Schwab. "He wants to be
nimble and he doesn't want the market to move on what he said."
Fed funds futures markets indicate investors see the speech as
mildly dovish. Before the speech, the market was pricing a 95.8%
chance of one rate cut and a 4.2% chance of no cut. After the
speech, the probability of at least a 25 basis-point cut rose to
100%, with the market showing a 5% chance of a 50 basis-point
cut.
On the data the data front, new home sales in July
(http://www.marketwatch.com/story/forget-slump-in-new-home-sales-in-july-falling-mortgage-rates-are-reviving-housing-market-2019-08-23)
fell 12.8% to an annual rate of 635,000 homes, below the median
forecast of 650,000, according to a MarketWatch poll of economists,
but are still up 4.3% compared to last year.
Check out:Forget July's slump in new-home sales, mortgage rates
are reviving the housing market
(http://www.marketwatch.com/story/forget-slump-in-new-home-sales-in-july-falling-mortgage-rates-are-reviving-housing-market-2019-08-23)
Which stocks are in focus?
Shares of Foot Locker Inc. (FL) tumbled 18.9%, after the
retailer reported second-quarter sales and profits
(http://www.marketwatch.com/story/foot-locker-shares-plummet-after-earnings-and-sales-miss-2019-08-23)
that missed Wall Street expectations.
HP Inc. (HPQ) shares fell 5.9%, after the PC and printer
manufacturer announced a Enrique Lores would assume the CEO role
effective Nov. 1, along with third-quarter results that matched
analyst expectations.
Salesforce.com Inc. (CRM) reported quarterly financial results
(http://www.marketwatch.com/story/salesforce-stock-surges-as-results-outlook-top-street-estimates-2019-08-22)
late Thursday, showing revenue growth and earnings-per-share that
beat Wall Street forecasts. The company's stock rose 2.2%.
Shares of Intuit Inc. (INTU) rose 1.1%, following a release of
better-than-expected fiscal fourth-quarter results
(http://www.marketwatch.com/story/turbotax-parent-intuit-stock-gains-5-after-q4-results-2019-08-22)
Thursday evening.
Hasbro Inc. (HAS) announced plans late Thursday to acquire the
British firm Entertainment One Ltd (ETO.LN), in a deal that values
the company at $4 billion. The toy maker's stock retreated nearly
9%.
How are other markets trading?
U.S. Treasury yields fell sharply as haven seeking investors
snapped up government paper. The yield on the 10-year Treasury note
ended below the 2-year yield
(http://www.marketwatch.com/story/treasury-yields-tick-higher-ahead-of-powell-speech-2019-08-23)
after briefly inverting on an intraday basis last week and earlier
this month. An inverted curve is seen as an often reliable warning
signal of recession, albeit with a lag.
Stocks in Asia traded mixed, as China's CSI 300 rose 0.7%, Hong
Kong's Hang Seng Index gained 0.5% and Japan's Nikkei 225 climbed
0.4%.
In Europe, stocks traded mostly lower, with the Stoxx Europe 600
losing 0.8%.
In commodities markets, the price of U.S. oil fell 2.1%, after
China announced that U.S. crude oil would be subject to new tariffs
(http://www.marketwatch.com/story/oil-falls-sharply-as-china-includes-crude-in-retaliatory-tariffs-2019-08-23).
Gold prices
(http://www.marketwatch.com/story/gold-prices-edge-higher-as-bond-yields-slide-2019-08-20)
jumped to close at a more-than-six-year high
(http://www.marketwatch.com/story/gold-prices-head-lower-set-to-snap-weekly-streak-of-gains-ahead-of-powell-speech-2019-08-23)
on a flight to safety.
The U.S. dollar fell, with the closely watched ICE U.S. Dollar
Index , a measure of the currency against a basket of six major
rivals, down 0.4%.
See:U.S. dollar sinks as Trump tweets stoke intervention fears
(http://www.marketwatch.com/story/us-dollar-sinks-as-trump-tweets-stoke-intervention-fears-2019-08-23)
(END) Dow Jones Newswires
August 23, 2019 16:40 ET (20:40 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.