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MARKET WATCH: Oct. 4

Oct 4, 2019 | 12:15 PM

Big Picture

Weak Economic Data Weighs on Equity Markets

It’s been another volatile week for global stock markets as investors grapple with a string of disappointing economic data, in both the U.S. and Europe. U.S. stocks fell sharply Tuesday as new manufacturing data came in lower than expected, adding to concerns about the health of the domestic economy. The Institute for Supply Management said its U.S. manufacturing index fell to 47.8 in September from 49.1 in August, the lowest reading since June 2009. North American markets reacted strongly, with the Dow dropping over 300 points, the Nasdaq sliding more than 90 and the TSX declining over 200 points in Tuesday’s session. Meanwhile European stocks dropped sharply Tuesday after eurozone manufacturing data showed the sharpest contraction in almost seven years. The September data from Spain, Italy and Germany were all below 50, indicating contraction, with the German numbers at their lowest level since 2009. And France’s numbers weren’t much better, just barely avoiding contraction at 50.1.

The negative sentiment spilled over into Wednesday, as a U.S. private-sector jobs report revealed that job creation had slowed in September, fueling further concerns about the U.S. economy. By Wednesday’s close, the Dow had plummeted nearly 500 points, the Nasdaq lost 123 and the TSX was off 137.

Tuesday and Wednesday’s declines put the Dow on pace for its worst Q4 start since the depths of the financial crisis in 2008. It’s also been an especially rough week for the TSX so far, which fell for the fourth straight session on Wednesday, before regaining some ground Thursday.

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Adding to this week’s negative market sentiment has been a host of geopolitical risks, including President Trump and the looming spectre of impeachment, the chaos surrounding Brexit, ongoing unrest in Hong Kong and growing hostilities between Saudi Arabia and Iran.

Despite all this, U.S. markets closed in positive territory Thursday as investors began pinning their hopes on additional rate cuts by the Fed.

Markets

N.A. Markets Lose Ground in Volatile Trading

For the four days covered in this report, the Dow lost 619 points to close at 26,201, the S&P 500 dropped 51 points to settle at 2,911, while the tech-heavy Nasdaq declined 68 points to close at 7,872. In Canada, the TSX surrendered 325 points to end at 16,369.

Equities/Strategy

Equities

The U.S. has announced new tariffs on U.S. $7.5B of goods imported from the E.U. The World Trade Organization (WTO) has granted its largest ever tariff allowance for the U.S. to impose taxes on imports from the European Union in retaliation for illegal government aid to Airbus. The U.S. is planning to include a 10% tariff on large civil aircraft from France, Germany, Spain, and the U.K. It will also slap 25% levies on a range of other items including Irish and Scotch whiskeys, wine, olives and cheese, as well as certain pork products, butter, and yogurt from various European nations.

The U.S. administration has reportedly requested the WTO meet on October 14th to formally authorize tariffs before they are set to take effect October 18th. The E.U. will retaliate against any Airbus-linked tariffs when the WTO rules early next year on the bloc’s dispute over U.S. subsidies to Boeing, according to European Trade Commissioner Cecilia Malmstrom.

Adding that the bloc is ready to work with the U.S. on a “fair and balanced solution for our respective aircraft industries”. Recall, the U.S. is already embroiled in a protracted tariff battle with China, where new penalties are set to take effect October 15th, and any wider flare-up of tit-for-tat tariffs with Europe could threaten an already fragile global economy.

U.S. President Donald Trump is said to be considering a trade policy known as a “carousel” for retaliation against the E.U., which would enable the U.S. to regularly shift which goods are tariffed, thus increasing uncertainty and malaise for European businesses.

The WTO lowered its trade growth forecast for this year to the weakest level in a decade, citing a “destructive cycle of recrimination.”

(Bill Curry)

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