Plus, U.S. manufacturing is contracting, the U.K. is Brexiting, car maker stocks are sliding, and Hurricane Dorian is approaching.
Stocks traded down on the open in the first trading day of September. The Dow declined by 400 points, or -1.5%, while the S&P 500 and the Nasdaq both fell -1.1%.
It’s “every country for themselves,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities. The month of September begins with global uncertainty perhaps at its recent highs. September will very likely set the tone for the remainder of this year and perhaps then some.”
Stocks were down this morning after the world’s two largest economies threw new tariffs at each other’s goods. New tariffs on billions of dollars worth of goods went into effect on September 1 from both the U.S. and China. President Donald Trump has said that officials from both countries were planning to meet this month, though no date has been set. Trump also pressured China on Twitter this morning, saying the country should make a deal soon as a trade resolution will get much more difficult if he wins reelection. “We are doing very well in our negotiations with China,” Trump tweeted. “While I am sure they would love to be dealing with a new administration so they could continue their practice of ‘ripoff USA’ ($600 B/year), 16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot… And then, think what happens to China when I win. Deal would get MUCH TOUGHER! In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!” Meanwhile, former U.S. ambassador to China, Max Baucus, said that a growing sense of nationalism in China could embolden China to wait Trump out. “Don’t forget… Chinese (are) very patient historically, they’ll wait it out, they’ll play lots of different angles. They’re going to try to hang in there, waiting for President Trump to come to them,” Baucus said. “There’s a feeling that nationalism is getting a little stronger… I think that’s also emboldening President Xi. … The Chinese are afraid to reach a deal with this president – it may not last, they can’t count on it, he might change his mind again. If there’s another administration, they think it might be better in the sense that it’d be more predictable, there’d be less uncertainty. It’d be more standard negotiations.” While U.S. markets were closed yesterday for the Labor Day holiday, China filed a complaint against the U.S. at the World Trade Organization over the new import duties from the U.S., claiming that the latest round of tariffs violated a consensus reached by the leaders of both countries in Osaka, Japan.
U.S. factory activity unexpectedly contracted in August for the first time in three years amid declining orders, production, and hiring. The Institute for Supply Management’s purchasing managers index fell to 49.1 in August, signaling the manufacturing economy in the U.S. is generally contracting. The group’s gauge of new orders dropped to a more than seven-year low, while the production index shrank to its weakest level since the end of 2015. “Respondents expressed slightly more concern about U.S.-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders,” Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, said in a statement. “Many respondents continued to note global trade softness as a reason for sluggish activity. After the report showing the U.S. manufacturing contraction in August, the yield on the benchmark 10-year Treasury note fell to its lowest level since 2016 at 1.441%, while the yield on the 30-year Treasury was also lower at 1.925%. “If there was any question whether or not the trade war was hurting manufacturing sentiment, today’s release cleared that up with the insightful observation that ‘Comments from the panel reflect a notable decrease in business confidence,’” wrote Ian Lyngen, head of rates research at BMO Capital Markets, in reference to the ISM report.
The British pound plummeted to three-year lows as Prime Minister Boris Johnson threatened to call a snap general election if members of parliament block a no-deal Brexit. Opposition leaders, as well as rebels from the ruling Conservative Party, applied for an emergency debate in the U.K. parliament to block a no-deal exit from the EU. If approved, a confidence vote on Johnson and his Brexit strategy could result. Johnson lost his majority in the House of Commons late Tuesday as he faces the showdown. Also Tuesday, Labour leader Jeremy Corbyn asked Johnson to publish the government’s analysis of its no-deal Brexit preparations. “It’s becoming increasingly clear that this government only has one objective – no-deal,” Corbyn told the House of Commons. Corbyn also accused Johnson’s administration of “cowardice” and said a no-deal result would put the U.K. “at the mercy of Donald Trump” for a trade deal.
Shares of Ford, GM, and Fiat Chrysler are down Tuesday morning after the United Auto Workers union overwhelmingly granted union leaders authorization to strike during negotiations this year with Detroit’s carmakers. 96% of union members at each of the automakers supported the action. The ongoing negotiations are expected to be the most contentious in at least a decade amid slowing sales, a volatile trade environment, and a widening federal probe into union corruption which led to UAW President Gary Jones’ home being searched by federal officials last week. Jones, who has not been charged as part of the multiyear corruption probe, said that no one goes into collective bargaining wanting a strike, but that it is a “key tool in the toolbelt as our bargaining team sits across from the company.”
Shares of Royal Caribbean, Norwegian Cruise Line, and Carnival were also down Tuesday after an analyst report from Nomura Instinet said that the cruise lines could see an estimated impact of $0.05 per share from Hurricane Dorian for the current quarter. The slow-moving Dorian, one of the most powerful hurricanes on record with winds up to 120 miles an hour, has been pounding the Bahamas for the past few days, killing at least five people and inundating homes with flood water. Mandatory evacuations are in place for parts of Florida, Georgia, and the Carolinas, where storm surges, high winds, and flooding rains could inflict extensive damage as the storm heads north. More than 1,300 flights have been canceled today due to the storm.
Stocks We’re Watching
Jinkosolar Holding Company (NYSE: JKS): Shares of JKS are up 121.13% year-to-date and are up more than 18% over the last week after the China-based solar panel maker crushed Wall Street estimates in its Q2 earnings results. The company reported adjusted earnings of $0.71 per share on revenue of $1 billion, compared to analyst expectations of earnings of $0.26 on revenue of $931.7 million. Jinkosolar reported shipments of its solar panels increased 11.5% from the same period last year and the company’s chief executive, Kangping Chen, said he expects 2019 to be a milestone year for the company’s solar business. “We are ideally positioned to benefit from the growth opportunities ahead,” Chen said in a written statement.
Ambarella Inc (NASDAQ: AMBA): Shares of this semiconductor stock are up 59.72% so far this year, and are up 25.13% over the last week. Late last week, the video-processing chip specialist delivered stronger-than-expected earnings. While Ambarella reported a quarterly revenue loss of 9.7% year-over-year to $56.4 million, that figure was above the high end of guidance for a range of $51 million to $53 million. On the bottom line, that translated to adjusted net income of $7.3 million, or $0.21 per share, crushing estimates of $0.02 per share. Ambarella CEO Fermi Wang said the company began mass-production shipments of computer-vision systems on a chip (CV SoCs) into the auto market this past quarter and made “strong progress” toward its vision for transitioning “from a pure video processing company to an artificial intelligence video company.”