The Daily Update - Trade War Concerns Felt Far and Wide

93% of stocks in the S&P 500 closed lower yesterday as market optimism over the US-China trade deal eroded. On Monday, Robert Lighthizer, US Trade Representative, warned of a recent “erosion in commitments by China”, clearly stating that as things stand tariffs on Chinese imports would rise from 10% to 25% this Friday.  The tariff news was reiterated by President Trump in a string of tweets, not only warning of impending 25% tariffs on the current $200 billion, but broadening the levy to over half a trillion dollars in Chinese goods with a further $325 billion in tariffs.

The modest decline of -1.65% masked the breadth of the market impact; all sectors in the index closed lower – with technology, industrials and healthcare leading the decline. The Dow Jones Industrial Average was also a whitewash, with all stocks down on the day, closing 473 points lower or -1.8%. The declines in May thus far have demonstrated the whelming force of macro concerns over and above positive corporate earnings surprises. Despite three quarters of companies in the S&P 500 trumping analyst estimates (of the 400+ that have reported so far) the Index is down around -3% month-to-date.

The sea of red yesterday extended not just across all US stocks but globally with the FTSE, CAC and DAX all down -1.6% while the Shanghai Composite closed (Monday) down -5.6%. This reflects growing evidence that this trade-war has had a sizable impact on the Chinese economy, perhaps more than both countries previously anticipated. Chinese data today exemplified this current economic strain under existing tariffs (and other headwinds) with exports falling 2.7% whilst imports rose 4%. This translated to an April surplus of ‘only’ $13.84 billion: 60% lower than the consensus forecast of $35 billion and the $32.65 billion surplus in March. However, with many still within a few percent of all-time highs, equity markets seems to be holding at levels consistent with a partial deal assumption – and not the catastrophe of an imminent trade war.