US Stocks Open Lower on Trade Deal Skepticism

December 4, 2018
US Stocks report

By Investors Hub

The major U.S. index futures are pointing to a lower opening on Tuesday, with stocks likely to give back ground following the rally seen in the previous session.

Profit taking may contribute to initial weakness on Wall Street, as traders cash in on the strong gains posted on Monday in reaction to the trade war truce reached by President Donald Trump and Chinese President Xi Jinping.

Uncertainty about whether the 90-day truce will give the U.S. and China enough time to reach a long-term trade agreement may inspire traders to cash in on yesterday?s strong upward move.

News that U.S. Trade Representative Robert Lighthizer, one of Trump?s more hawkish advisors on trade with China, has been tapped to lead the negotiations has added to the skepticism.

Trump has appeared optimistic about the potential for an agreement, claiming U.S. relations with China have taken a ?big lead forward? as a result of his meeting with XI.

?Very good things will happen,? Trump said in a post on Twitter. ?We are dealing from great strength, but China likewise has much to gain if and when a deal is completed. Level the field!?

?President Xi and I have a very strong and personal relationship,? he added. ?He and I are the only two people that can bring about massive and very positive change, on trade and far beyond, between our two great Nations.?

Overall trading activity may be somewhat subdued, however, with a lack of major U.S. economic data likely to keep some traders on the sidelines.

Tomorrow?s national day of mourning for former President George H.W. Bush may also limit trading activity, as the NYSE and the Nasdaq will be closed on the day and the release of most economic data has been postponed.

After moving sharply higher at the open, stocks gave back some ground but managed to remain firmly positive throughout the trading session on Monday. With the advance on the day, the major averages added to the substantial gains posted last week.

The major averages moved roughly sideways for much of the session before closing significantly higher. The Dow surged up 287.97 points or 1.1 percent to 25,826.43, the Nasdaq soared 110.98 points or 1.5 percent to 7,441.51 and the S&P 500 shot up 30.20 points or 1.1 percent to 2,790.37.

The initial jump on Wall Street reflected a positive reaction to the highly anticipated meeting between Trump and Xi over the weekend.

At the meeting, Trump and Xi agreed to a 90-day truce in the escalating trade war between the world’s two largest economies as they work to reach a long-term trade deal.

A White House statement said Trump agreed not to raise the tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent on January 1st as planned.

In return, China agreed to purchase a “not yet agreed upon, but very substantial, amount” of agricultural, energy, industrial, and other product from the U.S.

The White House said the U.S. and China will use the next 90 days to attempt to reach an agreement on issues such as forced technology transfer, intellectual property protection, and non-tariff barriers.

If the two countries are not able to reach an agreement by the end of the time period, the 10 percent tariffs on Chinese goods will be raised to 25 percent.

In remarks to reporters aboard Air Force One, Trump called the agreement with Xi an “incredible deal,” claiming it will have an “incredibly positive impact” on “every type of product.”

Trump also said China will be “opening up” and “getting rid of tariffs,” stating in a subsequent post on Twitter that China has agreed to reduce and remove tariffs on cars coming into the country from the U.S.

Paul Ashworth, Chief U.S. Economist at Capital Economics, noted Trump ripped up an earlier trade deal with China negotiated by Commerce Secretary Wilbur Ross.

“We suspect that since he negotiated this deal himself, Trump will be much more reluctant to torpedo it when his own personal reputation is on the line,” Ashworth said.

He added, “Nevertheless, his own administration includes plenty of China hawks who are pushing the protectionist agenda, so we suspect China will have to offer a little more than the minor concessions that South Korea, Mexico and Canada agreed to reach trade deals with the U.S.”

On the U.S. economic front, the Institute for Supply Management released a report showing an unexpected acceleration in the pace of growth in manufacturing activity in the month of November.

The ISM said its purchasing managers index climbed to 59.3 in November after falling to 57.7 in October, with a reading above 50 indicating growth in manufacturing activity. Economists had expected the index to edge down to 57.5.

Meanwhile, a separate report from the Commerce Department showed construction spending unexpectedly edged lower in October.

Energy stocks showed a substantial move to the upside on the day, benefiting from a sharp increase by the price of crude oil.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index spiked by 3.5 percent, while the NYSE Arca Natural Gas Index and the NYSE Arca Oil Index both surged up by 2.7 percent.

Considerable strength also emerged among computer hardware stocks, as reflected by the 3.4 percent rally by the NYSE Arca Computer Hardware Index.

Steel, semiconductor, gold, and retail stocks also saw significant strength on the day, reflecting broad based buying interest on Wall Street.

Dipo Olowookere

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.

Mr Olowookere can be reached via [email protected]

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