Blog

May 31st, 2019

Trade Tensions Reach New Heights

By PRATTE

 

Blogue 31 mai EN

Trade Tensions Reach New Heights
The trade war between the United States and China continued to worry investors this week. Tensions between the two countries are intensifying as Thursday, China accused the United States of “economic terrorism”. Here is what happened this week in the markets.

Market Brief

The US stock market was closed on Monday due to the Remembrance Day holiday. Despite opening up on Tuesday, worries regarding economic growth and trade tensions have once again afflicted the markets. At the end of the session, the Dow was down 0.9%, NASDAQ shed 0.4% and the S&P 500 lost 0.8%. Wall Street was also affected by the benchmark bond market rate, the 10-year US debt rate who was down at 2,261%, its lowest level since September 2017. “The market bonds players seem to be clearly thinking that the global economy is slowing down” Karl Haeling from LBBW decrypts.

Wall Street opened lower on Wednesday, as tensions between China and the United States continue to escalate. Huawei said on Wednesday that it will challenge through US justice, the latest US decision to add the company to its “blacklist”. In addition, China has announced plans to reduce its exports of rare earths, metals vital to the US industry. Wall Street ended the session down and the Dow closed at its worst level in four months.

Wall Street was back up on Thursday, supported by a stable growth in bond yields, easing fears of a recession. The Dow opened with a 40-point gain, NASDAQ gained 0.3% and the S&P 500 advanced 0.25%. President Trump surprised everyone on Thursday by announcing 5% tariffs on imported Mexican goods. At the open on Friday, the Dow plunged 300 points, the S&P 500 fell 1.2% and NASDAQ gave up 1.3%. Shares of US automakers plunged after the announcement as many have major production in Mexico. GM lost 4%, Ford was down 3.3% while Fiat Chrysler traded 5.1% lower.
The Toronto Stock Exchange was open on Monday and began the week up slightly, accumulating enough gains to recover some of the losses from the previous week. Despite a slow volume of trading, the TSX closed the day up 116 points, supported by oil prices, who posted some gains at the end of the session. On Tuesday, the Toronto index was back down, led by losses in the energy, industrial and financial sectors. On Wednesday, the TSX had its worst session since the beginning of the year, touched by new worries about an economic slowdown. The health care sector was the most affected during the session, down 3.2% while Canada Goose’s stock was down 30%.

Bank of Canada

As many expected, the Bank of Canada maintained its policy rate at 1.75%, saying that “the degree of monetary easing offered by the current key rate remains appropriate.” “More and more evidence suggests that the slowdown that occurred in late 2018 and early 2019 is followed by a recovery beginning in the second quarter,” said the Central Bank, adding that the oil sector is starting to recover, with output rising and prices remaining above recent lows.

According to the statement issued by the Bank of Canada, several indicators show that the oil sector is gaining momentum. As for the national housing market, it is stabilizing and the observed growth in the employment rate is solid. However, the Bank believes that trade tensions could have an impact on the Canadian economy. For example, the latest Chinese restrictions on Canadian products already have a direct impact on exports.

Canada Goose

The Canadian company unveiled for the first time since its IPO earnings below analyst expectations. The company’s revenues are up 25% to C $156.2 million, while estimates were C $156.8 million. Canada Goose posted net income of C $9 million, or 8 cents per share, compared to $8.1 million, or 7 cents a share, a year earlier.

While net profit has exceeded expectations, the shortfall is raising some concerns regarding demand for its products. However, the company expects to be able to achieve annual sales growth of at least 20% for the current year and plans to open eight stores, including three, in China. Wednesday at the end of the session, the company’s stock plunged 30%, its lowest level since it entered the stock market in 2017 shedding nearly a third of its value.

Trade War

Once again the trade tensions surrounding the United States and China dominated the headlines this week. “Trade tensions hit a new high” and “stock markets in North America and Europe have suffered severe losses” after China’s threats of reduced rare earth exports to the United States said David Madden, an analyst at CMC Markets. “The very fact that China played that card highlights how serious the situation has become,” he added.

On Thursday, China accused the United States of “economic terrorism.” “We oppose a trade war but are not afraid of a trade war. This kind of deliberately provoking trade disputes is naked economic terrorism, economic homicide, economic bullying,” Zhang said, when asked about the trade war with the United States.

 

 

 

 

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.
Blog

Want to become a client?

CONTACT US