Wall Street folds again as US and China raise the tariff stakes

Updated

For a bunch of high stakes gamblers, Wall Street traders don't seem to have much stomach for the poker game going on over US-China trade relations.

This week in finance: NAB business conditions and confidence (Tuesday)

Home loans (Thursday)

China trade balance (Friday)

Having started with washing machines and solar panels, US President Donald Trump has rapidly upped the ante through steel and aluminium tariffs, then $US50 billion worth of sanctions on 1,300 odds, sods and various widgets from China.

China threw $US3 billion worth of US pork, wine and nuts in the pot early in the week, then added soybeans, beef, whiskey and aircraft to its list of 106 new tariff measures by Wednesday.

Mr Trump declared that "unfair retaliation" and threatened to raise the stakes to $US100 billion, the Chinese vowed a "fierce counter strike".

Over the week, this tit-for-tat bidding soured sentiment on Wall Street as hopes for a negotiated settlement dimmed.

Having bought the line the tariffs were just a negotiating tool to narrow the US trade deficit with China, by Friday traders were doing their pre-weekend dump again.

"The market has vacillated between writing it off as just talk and assuming there could be a serious problem," Liberty View Capital's Rick Meckler said.

"If the market is down it often tends to accelerate on Friday. Investors don't want to take the risk of coming in Monday after having something happen over the weekend," Mr Meckler said

The key US indices all fell more than 2 per cent over the day. The benchmark S&P 500 was down around 1.5 per cent for the week.

The damage was less severe in Europe, with markets there ending the week up more than 1 per cent.

The ASX also eked out a gain over the week, although futures trading points to a weak opening.

Markets on Friday's close: ASX SPI 200 futures -0.6pc at 5,739 ASX 200 (Friday's close) flat at 5,788

AUD: 76.8 US cents, 62.35 euro cents, 54.4 British pence, 80.1 Japanese yen, $NZ1.05

US: Dow Jones -2.3pc at 23,933 S&P500 -2.2pc at 2,604 NASDAQ -2.3pc at 6,915

Europe: FTSE -0.2pc at 7,184 DAX -0.5pc at 12,241 EuroStoxx50 -0.6pc at 3,408

Commodities: Brent oil -2.1pc at $US66.93/barrel, Gold flat at $US1333/ounce, Iron ore (Steel Home) flat at $US64.00

US reporting season

The arm wrestle between trade fears and improving conditions in the US will be tested in coming weeks as first-quarter earning start pouring in.

At face value, the impending results season should support equity markets.

Earnings growth on the S&P500 is expected to be almost 18 per cent higher than a year ago, the strongest first quarter growth since the US re-emerged from the GFC.

Energy stocks look like having a belter with earnings per share growth forecast to up 80 per cent on the back of 16 per cent revenue growth.

Banks earnings are tipped to be up 20 per cent and industrials 14 per cent.

But Wall Street should remain mindful of its Cheerleader-In-Chief Donald Trump's comments over the weekend that the market may be in for "a little pain".

"So we may take a hit and you know what, ultimately we're going to be much stronger for it," Mr Trump told a New York radio station, in what is believed to be the first recorded admission that stocks could retreat under his administration.

Over in China, Commerce Ministry spokesman Gao Feng had a different take on the impending pain.

"The result of this behaviour is to smash your own foot with a stone," Mr Gao told a media gathering in Beijing.

"If the United States announces an additional $100 billion list of tariffs, China has already fully prepared, and will not hesitate to immediately make a fierce counter strike."

Next Friday's release of China trade balance will make for interesting reading.

The surplus is expected to narrow on higher imports and lower volumes, but perhaps not nearly enough to appease Mr Trump.

Is Australia's housing pulse weaker?

The ABS trots out its monthly lending figures, and once again all the focus being on the housing sector.

The consensus view is that February is likely to have seen home loans declining for the third straight month, dragged down by a faltering appetite from investors.

This lines up with house prices continuing to soften, lower auction clearance rates and fears of banks having to tighten credit in response to some fairly dodgy lending practices being uncovered by the Hayne Royal Commission.

However, ANZ's David Plank believes the weaker housing pulse may be regaining a bit a bit of vigour.

Mr Plank noted auction clearance rates in Sydney — the weakest market in terms of house prices — has recently improved, loan cancellations are not high from an historical perspective and the number of property resales made at a loss are also not particularly high, unless you are trying to sell in Brisbane or Perth.

In Perth, around a quarter of owner-occupiers are selling at a loss, while more than a third of investors are finding themselves underwater.

In Brisbane, the proportion of apartments being sold at loss in Brisbane is rapidly heading towards 30 per cent as well.

With tougher regulations from APRA throttling investor lending and interest only loans, Mr Plank said the recent trend has been a lowering of interest rates on fixed rate investor loans and an easing of lending criteria rather than a tightening.

"At present we think the likelihood is that the continued low interest rate environment will see recovery in house prices in the second half of this year," Mr Plank said.

That said, the housing pulse is still not exactly robust at the moment.

Preliminary results point to an uninspired weekend's bidding at auctions.

SQM's Louis Christopher said while Sydney's auctions may have picked up a bit, Saturday's clearance rate of around 66 per cent was well short of 75 per cent reported this time last year.

The clearance rate in Melbourne was also around 66 per cent on Saturday, down from 78 per cent in the corresponding weekend last year.

Household debt still worrying RBA

The Reserve Bank will give its latest update on financial stability (Friday) and it likely to plug the familiar refrain of high levels of household debt and low wage growth to it service it as the key risks to economy.

In the previous half-yearly Financial Stability Review back in October, the RBA announced it would be conducting its own "top-down" stress test on the banks to run in parallel with similar work by fellow regulator, APRA.

In February, RBA governor Philip Lowe said there appeared to have been an improvement in lending quality and "the situation looks less risky".

While the RBA appears more sanguine than six months ago household debt is still rising at a far more rapid rate than incomes.

Just how high the net debt to disposable income ratio needs to get before alarm bells ring is still an open question at the RBA, particularly if the wealth effect of soaring house prices starts to reverse.

Business conditions strong

The other pieces of local data out this week are measures of business and consumer sentiment.

The NAB's business conditions survey hit a series high in February, with manufacturers doing well and on-going positive responses on employment.

A significant pull-back is not expected.

The read on consumers might be a bit different.

Sentiment fell in February, but remained marginally in positive territory.

Recent retail sales figures showed consumers were back and buying which was a positive.

While employment news is also a positive, cooling property prices and turmoil in financial markets may drag things down again.

Australia

Date Event Forecast Monday 9/4/2018 Construction index Mar: Activity expanding Foreign reserves Mar: Sits around $70bn Tuesday 10/4/2018 Business conditions & confidence Mar: NAB survey, very strong conditions being reported Wednesday 11/4/2018 Consumer confidence Mar: Optimists narrowly outnumber pessimists, retail sales have picked up RBA speech Governor Philip Lowe speaks in Perth on regional variations in the economy Thursday 12/4/2018 Home loans Feb: Fell in January, likely to fall again Credit card data Feb: Purchases & balances Friday 13/4/2018 RBA financial stability review RBA's views on risks in the economy including household debt and bank loans

Overseas

Date Event Forecast Monday 9/4/2018 CH: Bao Forum Four day talk fest (starting Sunday) including President Xi's thoughts on economic reforms Tuesday 10/4/2018 CH: Inflation Mar: Both consumer & producer measures tipped to be softer CH: New loan & aggregate financing Mar: Credit is tightening, but forecast is for an expansion last month Wednesday 11/4/2018 US: Inflation Mar: Flat over the month, 2.3pc YoY US: Monthly budget statement Mar: Another big ($US215bn) deficit likely US: Fed minutes Insights from last meeting when rates were raised Thursday 12/4/2018 EU: Industrial production Feb: likely to be growing at +4pc YoY Friday 13/4/2018 CH: Trade balance Mar: An increasingly hot topic. Surplus expected to narrow on higher imports, lower exports EU: Trade balance Feb: Continues to run a strong surplus

Topics: company-news, economic-trends, stockmarket, trade, currency, money-and-monetary-policy, donald-trump, australia

First posted