Trump's trade war knocks global car stocks
German carmaker Daimler Benz sparked a global selloff of motor vehicle stocks when it issued an unexpected profit warning related to the US trade war with China.
E-commerce stocks on Wall Street were also hit by a US Supreme Court ruling that states can require online merchants to collect sales tax.
Fallout from the trade war, which has also resulted in tit-for-tat tariffs on US exports to the European Union and Canada, continues to be the main negative factor in stockmarkets.
The Dow Jones Industrial Average posted its longest losing streak since March 2017. It fell 196.10 points, or 0.8%, to 24,461.70, its eighth consecutive session of losses.
The S&P 500 lost 0.6% to 2749.76 and the Nasdaq Composite declined 0.9% to 7712.95.
The global trade war is boosting bond prices. The yield on the benchmark 10-year US Treasury note fell to 2.899%, compared with 2.928% on Wednesday.
Yield curve flattens
The rally in long-dated debt has also compressed the yield curve, the spread between yields on two- and 10-year bonds. It is at 0.358 percentage point – the smallest gap since August 2007. A flatter yield curve typically signals investors are less optimistic about long-term economic growth.
In its announcement, Daimler said Chinese retaliatory import duties on vehicles built in the US would squeeze sales and earnings.
The impact was immediate: Daimler shares fell more than 4%, as did BMW, which also has manufacturing plants in the US. Ford and General Motors, which also export to China, fell 1.4% and 2.2%, respectively, while shares of Renault in France also fell.
While many analysts expect the US and China to pull back from a full-blown trade war, others believe these periodic blowups will become more common.
“There is some complacency from markets,” GAM Holding, chief global economist Larry Hatheway says, adding that the economic backdrop is still strong.
Trade tension risks
But he believes investors are underestimating the risks of trade tensions increasing.
“It may happen at times when global economic and financial conditions aren’t as robust as they are now,” he says.
Philippe Houchois, an equity analyst at Jefferies, said a bigger threat to car makers is what happens to the Nafta agreement between the US, Canada and Mexico.
“The longer-term risk is to what extent it affects what car companies have been doing for the past two decades in terms of globalising their supply chains,” he said.
On the positive side, the US ambassador to Germany proposed the abolition of import tariffs for cars between the EU and the US.
E-commerce shares drop
Shares of Amazon.com fell 1.1%, eBay declined 2.3% and Etsy lost 3.3% on the Supreme Court ruling that states can collect sales tax on online transactions.
But traditional retailers could benefit from the ruling, Villere Balanced Fund portfolio manager Sandy Villere says. Shares of Target rose 1.5% and Best Buy added 1.7%.
“It could level the playing ground a little bit between some of the internet retailers versus bricks-and-mortar,” Mr Villere says.
Technology stocks fell, led by Intel’s 2.3% slide. Its chief executive, Brian Krzanich, resigned after he violated company policy during a past, consensual relationship with an Intel employee.
Oil shares and prices fell ahead of an expected decision by major oil-exporting countries to increase crude output by one million barrels a day,
Brent crude, the global benchmark, was down 1.8% to $US73.38 a barrel, US futures fell 1.5% at $64.72 a barrel. Shares of Chevron fell 2.3%, while Exxon Mobil lost 1.1%.
The Stoxx Europe 600 fell 0.9%, its lowest value since April. France’s CAC 40 declined 1.05%, Germany’s DAX lost 1.4% and the UK’s FTSE 100 shed 0.9%.