Trade war concern roil stocks; dollar rides a Fed wave higher

Oil falls below $79 as rising US stockpiles weigh

NEW YORK, Oct 18, (Agencies): The US dollar index rose on Thursday alongside Treasury yields after Federal Reserve policymakers showed unity in favoring more rate hikes next year.

Stocks, already under pressure from rising borrowing costs, were further weighed by concern over a simmering US-Sino trade war. Shanghai’s benchmark index closed at a near four-year low and China’s premier warned of risks to the economy.

European shares were little changed and the S&P 500 was on track to fall for the ninth session in the past eleven.

Minutes of the Federal Reserve’s latest meeting showed every Fed policymaker backed raising interest rates last month and also generally agreed that borrowing costs were set to rise further.

That reinforced expectations that US yields will rise further despite President Donald Trump’s view that the Fed is tightening too much.

“If interest rates continue to move higher from their current levels, investors will become even more reluctant to buy the dips in stocks,” Hussein Sayed, chief market strategist at FXTM, wrote in a note.

The Dow Jones Industrial Average fell 45.49 points, or 0.18 percent, to 25,661.19, the S&P 500 lost 6.26 points, or 0.22 percent, to 2,802.95 and the Nasdaq Composite dropped 44.42 points or 0.58 percent, to 7,598.28. The pan-European STOXX 600 index rose 0.04 percent and MSCI’s gauge of stocks across the globe shed 0.37 percent.

Emerging market assets were weighed by the rising dollar.

Emerging market stocks lost 0.97 percent, while MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.56 percent lower. Japan’s Nikkei lost 0.80 percent. The greenback slightly extended the previous day’s gains against a basket of its rivals on the Fed’s perceived hawkish stance.

The dollar index rose 0.18 percent, with the euro down 0.09 percent to $1.1489.

The Japanese yen strengthened 0.12 percent versus the greenback at 112.52 per dollar, while Sterling was last trading at $1.3071, down 0.32 percent on the day.

Oil prices fell as the fourth weekly increase in U.S. crude inventories suggested ample supply, while Saudi-US tension and falling Iranian exports kept the decline in check.

US crude fell 0.4 percent to $69.47 per barrel and Brent was last at $79.54, down 0.64 percent on the day.

In the Treasuries market, the 10-year yield hit a one-week high on worries about the number of interest rate increases from the Fed.

Benchmark 10-year notes last fell 6/32 in price to yield 3.2013 percent, from 3.179 percent late on Wednesday.

The 30-year bond last fell 15/32 in price to yield 3.3713 percent, from 3.346 percent late on Wednesday.

US

US stocks fell on Thursday as weak earnings reports from industrials raised worries about rising expenses and the impact of tariffs, adding to concerns over higher borrowing costs after hawkish commentary in the Federal Reserve’s minutes. The US-China trade war, higher rising borrowing costs and wage pressures have been the main concern of investors as the third-quarter earnings season gains steam, and contributed to last week’s selloff.

Those fears were manifested in Sealed Air’s results. The packaging company fell 6.5 percent after cutting its full-year profit outlook due to higher raw material and freight costs.

Results from Cessna business jetmaker Textron, equipment renter United Rentals and hand tools maker Snap-on Inc, which slid between 2.33 percent and 9.23 percent, only served to show corporate profit has little room to grow.

Profits at S&P 500 companies are expected to have risen 22 percent in the third quarter, slower than the previous two quarters, according to I/B/E/S Refinitiv. Of the 69 firms that have reported so far, 78.3 percent have beaten expectations.

Large industrials such as Caterpillar and 3M fell between 1 percent and 2.5 percent and helped pull the sector down 1.1 percent.

Defense companies such as Lockheed Martin and Raytheon were hit by US Treasury Secretary Steven Mnuchin pulling out of next week’s investment conference in Saudi Arabia.

At 11:34 am EDT the Dow Jones Industrial Average was down 233.97 points, or 0.91 percent, at 25,472.71, the S&P 500 was down 25.83 points, or 0.92 percent, at 2,783.38 and the Nasdaq Composite was down 110.23 points, or 1.44 percent, at 7,532.48.

The small-cap Russell 200 index, which is less immune to trade tensions than its larger peers but just as likely to be hit by rising costs, was down 1.13 percent, or 18.03 points at 1,571.57.

The defensive utilities, consumer staples and real estates were the biggest gainers among the 11 major S&P sectors.

Activision dropped 7.3 percent after its new “Call of Duty” videogame raked in over $500 million in its first three days of sales, lower than investor expectations.

Philip Morris rose 3.7 percent after the Marlboro cigarette maker topped analysts’ estimates for quarterly profit and sales. Altria rose 1.5 percent.

Declining issues outnumbered advancers for a 2.16-to-1 ratio on the NYSE and for a 2.47-to-1 ratio on the Nasdaq. The S&P index recorded five new 52-week highs and 18 new lows, while the Nasdaq recorded 11 new highs and 61 new lows.

Europe

European shares swung back into the red on Thursday as fears of rising rates and disappointing earnings from US industrials dragged Wall Street down, while HeidelbergCement’s profit warning sank European construction stocks.

The eurozone’s leading stocks index attempted a recovery but finished the day down 1 percent while the pan-European STOXX 600 index slipped 0.5 percent and Germany’s DAX slid 1.1 percent.

A weaker open on Wall Street sent European stocks south. US stocks fell across the board as weak earnings reports from industrial firms triggered worries over climbing costs and the impact of tariffs.

Meanwhile, Europe’s third-quarter earnings season is kicking up a gear after indexes hit a 22-month low last week when jitters over rising US bond yields and geopolitical worries rattled global markets.

Tech was the worst-performing European sector, down 2.1 percent, with banks down 1.7 percent as investors shed stocks most sensitive to the economic cycle.

Spanish banks Banco Sabadell, Bankinter, Bankia, Caixabank, BBVA, and Santander all fell between 2 and 6.7 percent after the Supreme Court ruled banks must pay stamp duty on mortgage loans, potentially costing them billions of euros in compensation.

The biggest earnings disappointment was HeidelbergCement , one of the world’s largest cement makers, which fell 8.6 percent after it cut its profit guidance for 2018, citing bad weather in the United States and higher-than-expected energy cost inflation.

Other European construction materials firms tumbled too: Buzzi Unicem fell 6.4 percent, Lafarge Holcim fell 3.9 percent and CRH down 4.4 percent.

Media was among the best-performing sectors, up 0.4 percent, lifted by French advertising agency Public is which reported stronger third-quarter sales pushing its shares up 3.8 percent.

The media sector has now overtaken the tech sector as Europe’s top-performing this year, in a sign of the waning dominance of tech.

The telecoms sector also gained, boosted by Sweden’s Tele2 which rose 4.7 percent after lifting its guidance on better-than-expected results.

Mobile telecom equipment maker Ericsson also surged up 6.2 percent after its third-quarter profit topped forecasts, boosted by sales of next-generation 5G gear in North America.

Asia

Asian markets resumed their downtrend on Thursday as investors contemplated more interest rate hikes by the Federal Reserve, while Washington added to China-US frictions and Brexit negotiators struggled to find common ground.

Tokyo ended 0.8 percent lower, while Seoul fell 0.9 percent and Singapore shed 0.5 percent.

Hong Kong, which returned after a one-day break to play catch-up with Wednesday’s rally, was marginally lower.

Taipei, Manila, Jakarta and Bangkok were also sharply down but Sydney rose 0.1 percent after data showed unemployment in Australia at its lowest in more than six years.

Shanghai dived almost three percent to a four-year low as already-strained relations between China and the US took another hit after the White House said it plans to withdraw from an international treaty on postal rates, in a decision aimed at pressuring Beijing.

The yuan extended losses to sit at 6.9384 per dollar, around its lowest levels since early 2017, with some observers saying the decision not to call out China as a manipulator gave Beijing room to allow for further weakness.

Key figures around 0810 GMT Tokyo - Nikkei 225: DOWN 0.8 percent at 22,658.16 (close)

Hong Kong - Hang Seng: FLAT at 25,454.55 (close)

Shanghai - Composite: DOWN 2.9 percent at 2,486.42 (close)

Dollar/yen: DOWN at 112.52 from 112.59 yen

Oil

Oil fell more than $1 a barrel to below $79 on Thursday as the fourth weekly increase in US crude inventories suggested ample supply, while Saudi-US tension and falling Iranian exports lent support.

US crude inventories rose 6.5 million barrels last week, the Energy Information Administration said on Wednesday, the fourth straight weekly increase and almost three times what analysts had forecast.

Brent crude, the global benchmark, was down $1.07 at $78.98 a barrel at 1330 GMT. It has dropped almost $8 since reaching $86.74, the highest since late 2014, on Oct 3. US crude was down $1.07 at $68.68.

“Stocks are building,” said Olivier Jakob, oil analyst at Petromatrix. “It’s a continuous trend. Week after week, it does start to add up.”

Gold

Gold edged higher on Thursday, supported by an improved technical outlook that helped the metal hold out against a stronger dollar.

Spot gold rose 0.1 percent to $1,223.40 an ounce at 1322 GMT. US gold futures were down 0.1 percent at $1,226.40.

Monday’s global stock market selloff has added appeal to gold, helping the metal to a two-and-a-half-month peak of $1,233.26.

Gold has also been testing resistance near the 100-day moving average, around $1,226, with some analysts saying a break above that level could trigger further gains and put pressure on shortsellers.

The dollar index held near a oneweek high after the US Federal Reserve minutes from the last meeting reiterated a hawkish stance on monetary policy, normally a bearish signal for gold. Holdings of the SPDR Gold Trust, the largest gold-backed ETF, have gained more than 2 percent since Oct 3.