Dow dives as US imposes steel, aluminium tariffs, sparks trade war with allies

Glenmede Trust chief investment officer Jason Pride says tariffs work as a tax on the economic system.

Manufacturing and multinational stocks on Wall Street tumbled as the Trump administration imposed hefty tariffs on steel and aluminium imports from its allies Canada, Mexico and the European Union.

But progress occurred in two other geopolitical issues that have caused recent market turmoil. The two main populist parties in Italy have formed a government to the satisfaction of the president, while President Donald Trump announced North Korean officials will deliver him a “very positive” letter from Kim Jong Un ahead of the June 12 summit in Singapore.

On Wall Street, the Dow Jones Industrial Average slid nearly 300 points on the tariff plans before clawing back some losses later in the session.

Canada, Mexico and the EU all reacted by saying they would target imports of US goods, from steel and pipe products to lamps, grapes, apples and processed meat.

While the proposed tariffs amount to a small portion of the affected countries’ economies, the tit-for-tat responses have the potential to lead to a protracted trade war.

“There has to be recognition by the market that any tariffs imposed by any government on any trade across borders are a tax on the system,” Glenmede Trust chief investment officer Jason Pride says.

Dow drops 250 points
At the close, the Dow slid 251.59 points, or 1.0%, to 24,415.98. The S&P 500, which was also weighed down by weak earnings from discount retailers Dollar General and Dollar Tree, shed 0.7%. to 2705.31.

The Nasdaq Composite eased 0.3% to 74542.12 as shares of tech companies fared better than others.

Stocks sensitive to the higher costs that would likely come from the trade tariffs were among the Dow’s biggest decliners. Boeing fell 1.1%, while heavy machinery manufacturer Caterpillar slid 1.5%.

Consumer staple stocks, which provide some of the goods Mexico is targeting, also fell. Procter & Gamble, for example, shed 2.7%.

Meanwhile, assets that are considered to be relatively safe moved higher. Utility stocks rose since they tend to be more stable during periods of economic stress and pay hefty dividends.

Bond yields fall
US government bonds strengthened. The yield on the benchmark 10-year treasury note slipped to 2.837% from 2.842% on Wednesday.

The falling yields typically hurt lending profitability among banks. Goldman Sachs and JPMorgan Chase fell 1.9% and 1.1%, respectively.

“This has the potential to create more economic uncertainty,” Ameriprise global market strategist Anthony Saglimbene says of the tariffs.

He is bullish on the stock market overall but says trade tensions have a potential to “derail” the economy.

Oil prices drop
Oil prices fell in the US but rose in the global market after data showed a larger-than-expected decrease in US stockpiles.

US crude futures fell 1.7% to $US67.04 a barrel. Brent crude, the global benchmark, added 0.1%, to $US77.59.

On the summit to “denuclearise” the Korean peninsula, Mr Trump said he was hopeful it would still take place but it may need a second or third meeting to reach a final agreement.

“I look forward to seeing what’s in the letter but it’s very important to them,” he said.

Secretary of state Mike Pompeo completed a second day of talks with General Kim Yong Chol, the highest-ranking North Korean official to visit the US in 18 years.

Euro stocks tumble
In Europe, stocks erased earlier gains after the tariffs were announced.

The Stoxx Europe 600 fell 0.6%. France’s CAC 40 lost 0.5%, Germany’s DAX 1.4% and the UK’s FTSE 100 0.15%.

Italy’s FTSE MIB eased less than 0.1% as President Sergio Mattarella finally agreed to a coalition government made up of the conservative League and the radical 5 Star Movement.

The little-known lawyer and academic Giuseppe Conte is still their choice of prime minister but the have bowed to the president’s desire for an economy minister who won’t disrupt the markets or the banking system by threatening to pull out of the eurozone.

Luigi Di Maio, leader of the 5 Star Movement, will become welfare and economic development minister, allowing him to oversee legislation instituting a universal basic income. Matteo Salvini, leader of the League and who pledged to deport hundreds of thousands of illegal immigrants, will become interior minister.

Attention is now focused on Spain, where conservative Prime Minister Mariano Rajoy faces defeat in a confidence vote.

He has lost the support of a Basque party, a key ally in his coalition, which has lost popularity because of measures to avert Spain’s economic collapse during the eurozone’s debt crisis.

If he loses, Socialist leader Pedro Sánchez is expected to take over as prime minister.

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Economically, that new Italian government is a nightmare. I'm assuming they still wish to pay a UBI, grow the state, etc, while giving tax cuts, meaning the second most indebted/crippled member of the EU is about to get even more indebted. This on top of their existing structural problems have never been fixed, and may not be fixable as so embedded in their psyche and culture.

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I agree with Mark.
Their economy is in deep strive with no possible means of salvation.
Paying off debt with borrowed money is a sure receipe for disaster.
Problem is they are by no means the only economy using this silly nonsense as a short term gratifying solution.
When it folds as it will do anytime we will all suffer across the globe.
Chasing ones tail is exhausting and is very short term.
NZ will not fare any better than anyone else because we have over populated with emigrants...choked up our hospitals and our roads.
Frustrated every section of society that we can and we can not pay our way.
Now we about to tax the population with fuel increases that will solve nothing because until we STOP emigration and do a five year catch up we simply can not win or begin to get ahead of our problems.
A 5% down turn in our economy is all will take to send us all to the poor house.
I read recently the 8% owe 40% of all the the hell did that happen and guess who makes up the 8%.
Are we so stupid that we will allow politicians central and local to go on conning us in order to hide the oibvious.
Goff came to power promising to cut cost...yeh right what a nonsense.
Today he put fuel up for the next ten years.
He has introduced so many targeted tax that in fact Auckland rates are up 9.7 % not the 2.5% he promised.
When are we going to put a stop to such nonsense.
The fuel increase will absolutely nothing to cure the traffic woes we suffer because we are putting an extra 70,000 extra vehicles a year onto the roads....why then are we conned into accepting Goff's and Councilors lies.
Or do they simply not understand the basic need to reduce the pressure on roads by cutting emigration Now.
The labour government in power promised to forthwith reduce emigration and lower the stress levels of people trying to go about their business.
Have they done that NAH and will they Nah.
We are locked into a system of increasing our population simply to pay for what we have already spent.
We are fools waiting for the big colapse

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Yep, absolutely nothing planned, apart from Shane's slush fund grants, to try to fix the country's dire lack of productivity growth.

What the heck do all those immigrants in Auckland do? Take advantage of the schools, etc with the breadwinner continuing to work offshore? We are kidding ourselves if we think high immigration will bring the next Steve Jobs to NZ!

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You're right it was one of Winnies top policies, reduce the migrants. Most of them are students - wippee. Let's try and get the last 4.something % off the dole (and drugs) and they can pick fruit that need harvesting. Just pay them the $80 per week so they can keep their dole and finish paying it after they finish picking at $80 pw. Would that work?

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Not to mention the hordes of low value tourists coming in and adding SFA to the economy, but blocking roads, ruining our vulnerable scenic and environmental beauty, putting up prices and creating shortages of housing in tourism spots. Now the Kiwi family can not afford to holiday in Queenstown, Wanaka, and the others.
One would think we would learn from the dairy overstocking damage to our land and waterways.....Same applies to overstocking tourists.
What benefit do freedom campers bring us? crapping in our streets and beaches and spending $5 per day on imported quick noodles?
We need a high value low volume tourist regime....Tax arrivals until we hit the optimum balance. I have seen the affects of mass tourism in Asia and elsewhere and it is ugly and polluted leaving a huge economic burden on locals to remedy.

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