Tar­iffs, ris­ing yields blamed for big sell­off

China Daily (USA) - - ACROSS AMERICAS - By HENG WEILI in New York heng­weili@chi­nadai­lyusa.com

The on­go­ing trade dis­pute with China was one rea­son an­a­lysts were giv­ing for the steep sell­off in US stocks on Wed­nes­day.

The Dow Jones In­dus­trial Aver­age tum­bled 831.83 points, or 2.2 per­cent, to 25,598.74. The S&P 500 lost 94.66 points, or 3.29 per­cent, to 2,785.68, and the Nas­daq Com­pos­ite dropped 315.97 points, or 4.08 per­cent, to 7,422.05.

Traders were gird­ing for losses in Asian stocks on Thurs­day af­ter the worst rout in US eq­ui­ties since Fe­bru­ary, which widened late in the ses­sion amid con­cerns the US-China trade con­flict is in­ten­si­fy­ing at the same time that fi­nan­cial con­di­tions are tight­en­ing, damp­en­ing the out­look for cor­po­rate prof­its.

Fas­te­nal Co, an in­dus­trial sup­ply dis­trib­u­tor based in Wi­nona, Min­nesota, added to angst that the trade war with China is rais­ing ma­te­ri­als costs, which will pinch profit mar­gins.

Fas­te­nal re­ported third-quar­ter re­sults on Wed­nes­day that beat ex­pec­ta­tions but said “chal­lenges re­main from in­fla­tion­ary pres­sures and new tar­iffs on Chi­nese-sourced goods”.

Like Fas­te­nal, other com­pany ex­ec­u­tives on quar­terly earn­ings calls also will dis­cuss how they ex­pect the trade stand­off with China to af­fect busi­ness.

Es­tee Lauder and Tif­fany led stock losses af­ter French lux­ury goods maker LVMH con­firmed that China is en­forc­ing cus­toms rules more strictly amid the trade ten­sions.

Oil fell from $75 a bar­rel de­spite Hur­ri­cane Michael bear­ing down on the US South­east.

The 10-year Trea­sury note, a bench­mark for home mort­gages, rose above 3.25 per­cent for the first time since May 2011.

“And when you add the threat of higher bor­row­ing costs on things like houses and cars and cor­po­rate debt to the eco­nomic ob­sta­cles caused by the US trade war with China, all it takes is a whiff of weak­ness to set a ma­jor sell­off in mo­tion,” USA To­day wrote.

The yields on 3-year Trea­sury notes have re­cently passed 3 per­cent, a level that starts to catch the eye of in­vestors — at the ex­pense of stocks.

“Short-term bonds are get­ting to be a com­pelling place to hang out,” said Jack Ablin, chief in­vest­ment of­fi­cer at Cres­set Wealth Ad­vi­sors in Chicago.

The yields have been boosted by solid US eco­nomic data that has many think­ing the Fed­eral Re­serve will be dish­ing out rate in­creases the next 12 months.

US Pres­i­dent Don­ald Trump said the Fed has gone “crazy” rais­ing in­ter­est rates.

“Ac­tu­ally, it’s a cor­rec­tion that we’ve been wait­ing for, for a long time, but I re­ally dis­agree with what the Fed is do­ing,” Trump told re­porters be­fore a po­lit­i­cal rally in Penn­syl­va­nia.

“The mar­ket has been on a 10-year bull run, and we have sel­dom seen a 10 per­cent cor­rec­tion dur­ing that time. Ev­ery time we get around that num­ber, mar­kets come ral­ly­ing back. What’s dif­fer­ent now is that the 10-year bond yield is much higher. I think we’re get­ting an over­due cor­rec­tion,” said Trip Miller, man­ag­ing part­ner at Gul­lane Cap­i­tal Part­ners in Mem­phis. Reuters and Bloomberg contributed to this story.

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