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September 6th, 2019

Trade War is Disrupting the Markets

By PRATTE

Blogue 17 mai EN

September has arrived, the holidays are over, and it is with great pleasure that we are back in better shape than ever! What a great summer we had and hope you enjoyed it.

August ended on a bad note for the global markets whom all closed the last session of the month down. Trade tensions between China and the United States have fuelled the news throughout the summer period, pulling the markets down. Here is what happened this week in the markets.

Market Brief

The US markets were closed on Monday to celebrate Labor Day. The three major US indexes opened the first session of September down, affected by the latest news surrounding the trade war. The Dow opened down 270 points; the NASDAQ lost 0.8% while the S&P 500 lost 0.7%. The United States announced Sunday that it will impose 15% tariffs on several Chinese products and China retaliated with new tariffs, intensifying the tensions between the two countries. Nvidia lost 2.1% while Boeing, Apple and Caterpillar weakened by 1%. It was without a doubt a difficult day for Wall Street who closed Tuesday session down.

Stocks were back on track Wednesday, managing to gain some points thanks to a wave of optimism facing various geopolitical conflicts such as Brexit and the political crisis in Hong Kong. Lyft advanced 0.9% and Uber gained 2.2% at the opening while Starbucks fell 3.3%. The markets continued their good performance throughout the session, ending the day on the rise. “Since the beginning of the summer, the main fear from the markets was that the situation in Hong Kong would degenerate politically with a strong intervention of China,” said Gregori Volokhine of Meeschaert Financial Services. According to the latter, “we have removed a big worry all at once. Nothing is solved, but at least it seems that we are not heading for the worst.” The same goes for Brexit, where an agreement seems to be emerging.

This good performance continued Thursday at the opening after China and the United States announced that they agreed to meet in October. The Dow gained 400 points, supported by Boeing (+ 1.4%) and Caterpillar (+ 3%), NASDAQ was up 1.3% and the S&P 500 was up 1.1%. US markets closed higher on Thursday, as investors were encouraged by several economic indicators that were considered encouraging. Wall Street opened in scattered order on Friday after August jobs data showed a smaller-than-expected rise in nonfarm payrolls.
Canadian markets were also closed Monday for Labor Day. Just like the US markets, the TSX started Tuesday’s session with a drop of 0.20% to finally end the day down 42 points. The energy sector weakened on Tuesday, driven down by oil prices. However, the health care sector performed well, thanks in part to Canopy Growth, who gained 5.6% at closing. The TSX opened up 5.6% Wednesday, helped by a resurgence of black gold, thus giving strength to the energy sector. The Toronto index was able to keep its pace and closed up 49 points as 10 of its 11 sectors were positive. The Toronto Stock Exchange managed to finish the session at its highest level in six weeks within 100 points of its historic high. This good performance dissipated at market opening on Friday, while the TSX opened down 0.27%.

The Trade War

Negotiations surrounding the trade war between China and the United States continued throughout the summer, creating several headaches for investors. The last few weeks have been rather hectic as the two powers have imposed new tariffs, causing a rise in tensions. With “tweets” and provocative statements, US President Donald Trump continues to try to dominate the economic conflict. The two countries continued the reprisals despite the truce announced in late June. On August 23, China unveiled new tariffs on $75 billion US products and cars. Then on Sunday, the US government announced that it will begin to charge 15% tariff on $150 billion worth of Chinese imports.

China announced Monday it had filed a complaint with the World Trade Organization (WTO), facing the latest tariffs unveiled by the United States. “China is very dissatisfied and staunchly opposed to this. In accordance with WTO rules, it will firmly protect its legitimate rights and interests,” said the Chinese Ministry of Commerce. The trade war has been going on for more than a year, resulting in the mutual imposition of punitive tariffs on more than $360 billion in annual trade. Thursday, the two superpowers announced they had agreed to a meeting next October creating a wind of optimism surrounding the possible resolution of the conflict.

Bank of Canada

The Bank of Canada announced Wednesday it will maintain its interest rate at 1.75%. Canada recorded a 3.7% acceleration of GDP growth in the second quarter. This increase “exceeded expectations” however the Bank “expects economic activity to slow down in the second half of the year.” The institution noted, however, that rising trade tensions between China and the United States “weigh more heavily on the pace of the global economy.” As the trade conflict between the US and China have intensified, global trade has contracted and business investment has weakened, the bank said.

The Bank of Canada also argued that “business investment contracted sharply after a strong first quarter, given the increased uncertainty surrounding trade.” It is for all these reasons that the Bank considers that “in this context, the degree of monetary stimulus in place remains appropriate.” The last increase in the key rate dates to October 2018 and the next meeting will take place on October 30th. The Bank mentions that, despite economic strength at the beginning of the year, the latter was temporary, and that economic activity should probably slowdown in the second half of 2019.

Facebook
The social media giant announced Thursday the official launch in the United States of its new dating service called “Facebook Dating.” The company said the new service would give people the opportunity to “start meaningful relationships” through common elements, such as interests, events and groups. Instagram users will also be able to embed their posts directly into their profile. “Facebook Dating” will also allow users to add Instagram subscribers to a list nicknamed “Secret Crush.” In addition, users will have the opportunity to add Facebook and Instagram stories to a dating profile.
Facebook also pointed out that its service will be safe. “Users can report and block other users, and they’re not allowed to send photos, links, payments, or videos to messages. Users can also share details of an upcoming date or location with a trusted Facebook Messenger if they wish.” Match’s stock, the direct competitor of Facebook Dating, was down 4% Thursday following the announcement. For its part, Facebook’s stock ended the day up 2%.

 

 

 

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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