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May 17th, 2019

Trade Tensions Are Triggering Markets

By PRATTE

Blogue 9 fev EN

 

Trade Tensions Are Triggering Markets

The trade war between the United States and China continued this week, directly affecting the markets as China announced retaliation after the latest US threats. Several stocks such as Apple or Caterpillar who remain sensitive to the trade tensions have experienced difficult sessions this week making the main indexes tumble. Here is what happened this week in the markets.

Market Brief
Markets had a hard time at the beginning of the week, shaken Monday by the announcement of reprisal tariffs by China. They announced that as of June 1st, an increase in tariffs on several US products might happen, an approximate value of $60 billion in annual imports. The Dow ended down 2.38% and the S&P 500 yielded 2.41%, both indexes recorded their worst session since early January. The NASDAQ ended the day losing 3.41%, its worst level since December. Caterpillar’s stock ended the session down 4.6%, Apple lost 5.8% and Boeing yielded 4.9%.

Wall Street bounced back on Tuesday as markets opened up. All three major indexes ended the day slightly higher. “After this steep fall in indexes, Tuesday’s rise is primarily a rebound,” said Terry Sandven of US Bank Wealth Management. In addition, several stocks that are usually sensitive to tensions with China have resumed volume Tuesday. Caterpillar finished up 1.7%, Boeing took 1.7% while Apple gained +1.6%.

Wall Street opened lower on Wednesday, as investors were worried about a decline in economic data from China and the United States. China reached its worst level in 16 years after announcing a decline in retail sales growth. While the United States announced that industrial production was down 0.5% in April. Disturbing data for the world’s two largest economies. The three leading US indexes closed Wednesday’s session higher, supported by news announcing a possible interruption of the imposition of additional customs taxes in the automotive sector.

Good quarterly results from Walmart and Cisco came to support the Dow on Thursday, who opened up 100 points. Throughout the session, investors were optimistic regarding a drop in the tension between China and the United States, allowing the indexes to end up positive. After three days of good performances, the indexes “have almost caught up with all the ground lost during Mondays hectic session”, said Ken Berman of Gorilla Trades. The Chinese Commerce Ministry spokesman Gao Feng said Thursday, according to state-run news agency Xinhua, that the U.S. is exhibiting “bullying behaviour” regarding their latest decisions on trade war disrupting the markets Friday at the open.

The Toronto Stock Exchange also suffered from the trade tensions between China and the United States ending Monday’s session down 104.14 points. The energy sector lost 2.3% while the shares of cannabis companies declined; Hexo dropped 7.2% while Canopy Growth lost 7.5%. Tuesday, the TSX, which started the day with gains of 34 points, ended the session up 91 points while eight of its eleven sectors performed well. In fact, several of the cannabis companies’ stocks managed to erase Monday’s losses, allowing the health sector to rise by 3.1%. The TSX ended Wednesday’s session up 33 points while BlackBerry (+ 1.1%), Aurora (+ 2.7%) and Shopify (+ 4%) pulled the index up. The Toronto Stock Exchange continued its good performance Thursday, ending the day with gains. Friday, the TSX, just as its US counterparts opened down as Thursday’s optimism had already vanished as trade tensions continued to dominate the markets.

Uber

The company made its big entrance on Wall Street Friday in a climate of uncertainty as the Sino-US tensions continue to disturb markets. Uber closed Friday’s session down 7.6%. On Monday, the company continued its poor performance and ended the day down 10%, losses of 17.55% in just two sessions. Since the beginning, the company has been experiencing a great deal of difficulty in terms of profitability, unable to prove its effectiveness to investors, causing Uber to accumulate significant losses over a period of 10 years.

“It’s very unusual to see such a rapid drop for a company of such magnitude. But it’s a company whose value is very difficult to establish and it should undergo big yo-yo moves in the future, said Jay Ritter, an IPO specialist at the University of Florida, adding that Facebook was already profitable when it entered the stock market.

At the close on Monday, Uber was worth 62 billion in market value, while a few weeks ago it was estimated at 100 billion. The competition between Uber and Lyft undermines the profitability of both. The two companies are offering many promotions in order to become the leader in the industry. However, these promotions are having the opposite effect, reducing their profits. Both their IPO was catastrophic and several analysts believe that the big banks are to blame. The journal “Les Affaires” published a great piece on the subject.

Aurora

The company unveiled this week quarterly results below expectations. The Canadian cannabis society recorded losses of $160.1 million Canadian. Canadian consumer incomes rose 37% to $29.6 million, outpacing medical revenues of $29.1 million, which also rose 12%. The cost per gram of dried product increased from $1.92 to $1.42, but the average net selling price also decreased from $6.80 to $6.40.

“We had solid revenue growth and strong operating results in a strong quarter across the industry. We are focused on creating a sustainable business in the long term, “said CEO Terry Booth. The company’s stock lost 3.8% since the beginning of the year and was down 2.4% at the open on Wednesday after announcing its earnings.

Walmart

The US company posted strong quarterly results on Thursday, its net profit jumped 80% to $3.84 billion. Walmart sales are also up, an increase of 3.4% for its in-store sales and a 28% rise for its online sales. However, the trade war between the United States and China could force Walmart to increase its prices, hitting the consumer where it hurts the most, right in their wallet.

Walmart, however, has stated that they are in an excellent position to meet their 2019 targets. The latter is concentrating the majority of its investments in its one-day delivery service, attempting to take Amazon’s market share. Walmart announced this week the start of its one-day delivery service for more than 200,000 items nationwide, without revealing the exact amount of expenses. An announcement that comes just days after Amazon announced that his one-day delivery would be free for Prime members. Walmart’s stock is up 18% since the beginning of the year and gained 3.5% at the open of markets Thursday.

 

 

 

 

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.
The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report.
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