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While you were sleeping: Wall St slides as protectionism looms

Thursday 8th March 2018

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Wall Street declined, while US Treasuries rose, as concern about a global trade war, sparked by US President Donald Trump’s plans to impose tariffs on steel and aluminum imports, intensified. 

"It looks increasingly likely that President Trump’s plan to impose tariffs on imports of steel and aluminium on grounds of national security will be implemented in some form," Andrew Kenningham, chief global economist at Capital Economics, wrote in a note on Wednesday. "If so, other governments including the European Union, will respond with measures of their own."

"Meanwhile, the bigger concern is of a much broader and deeper shift towards protectionism in the coming years," according to Kenningham.

In 1.34pm trading in New York, the Dow Jones Industrial Average dropped 1 percent, while the Nasdaq Composite Index slipped 0.2 percent. In 1.19pm trading, the Standard & Poor’s 500 Index retreated 0.8 percent. 

US Treasuries rose, sending the yield on the 10-year note two basis points lower to 2.86 percent.

On Tuesday, the White House announced that Gary Cohn, Trump's top economic adviser and a free-trade advocate, is resigning. 

“There is more of a political worry that has crept back into the market,” Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, told Reuters.

“It’s not just the tariffs, but the broader White House changing ... all those things are undercurrents which are affecting market sentiment in the near-term,” according to Schutte. 

Meanwhile, concern about a global trade war has money managers in foreign exchange markets also repositioning themselves.

“Currencies can be very small but sharp objects, where a little exposure can have a large impact,” Gene Tannuzzo, a portfolio manager at Columbia Threadneedle Investments, told Bloomberg. “So you could see more and more managers just not really stick their neck out as it relates to FX exposure.”

The Dow fell, led by declines in shares of Exxon Mobil and those of Caterpillar, down 3.2 percent and 2.8 percent respectively recently. Shares of IBM and those of Intel were the only stocks in the Dow to gain in early afternoon trading, up 0.7 percent and 0.1 percent respectively.

Shares of Exxon Mobil dropped after the company unveiled a capital spending plan that failed to impress analysts and investors.

“To us this highlights that there are no easy fixes to rejuvenate Exxon’s portfolio, and it is likely to take time for this investment to flow through into higher earnings, cash flow and returns,” RBC Capital Markets analyst Biraj Borkhataria told Reuters.

In Europe, the Stoxx 600 Index ended the session with a 0.4 percent advance from the previous close. The UK’s FTSE 100 index added 0.2 percent, France’s CAC40 Index rose 0.3 percent, while Germany’s DAX Index climbed 1.1 percent.


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