China hits back as trade war starts to bite

Trade data due this week is expected to show slowing growth in exports and imports.
US National Economic Council director Lawrence Kudlow says the Chinese economy is in trouble.

Robust economic data and corporate earnings have helped keep US investors relatively optimistic in recent months, even as global trade tensions have ratcheted higher.

In the week ahead, China releases on Wednesday its most recent trade data. Softer demand amid rising trade tensions probably weighed on the country’s exports and imports growth last month.

China is planning to impose tariffs on a majority of its US imports in reaction to the latest round of tariff threats from President Donald Trump.

The White House believes it has a strong hand in the trade fight with China given the strength of the US economy and a recent deal with the European Union to ease trade tensions.

“China is not going to dominate our economy,” National Economic Council director Lawrence Kudlow says.

“They are the ones with the lousy economy … Look at their stock market. Look at their currency. They’re the ones in trouble, not us. We’re doing great.”

On Friday, China said it would impose tariffs of 5-25% on $US60 billion worth of US goods from farm products and machinery to chemicals.

China tariff options are limited by the level of its US imports of $US153.9b, authorities will also resort to other means to hit back at foreign companies.

Prices data due
US economic data due this week include consumer and producer price index figures for July.

Overall producer prices climbed 3.4% in June, the largest year-to-year rise since November 2011. Economists expect the index to increase 0.2% on a monthly basis.

The price index for personal-consumption expenditures, the Federal Reserve’s preferred inflation measure, rose 0.1% in June from a month earlier and was up 2.2% from a year earlier. Economists expect on a monthly increase of 0.2%.

On Wall Street, the S&P 500 has made to its fifth consecutive weekly gain after a string of upbeat earnings.

Apple became the first US company to surpass $US1 trillion in market value. 

Warren Buffett’s Berkshire Hathaway, which has its biggest stock holding in Apple, reported a surge second-quarter net earnings, boosted by insurance underwriting and a change to accounting rules.

Net earnings for the quarter were $US12b compared with $4.26b a year earlier.

Wall Street advances
The Dow Jones Industrial Average added 136.42 points, or 0.5%, to 25,462.58. The S&P 500 was up 0.5%, to 2840.35 and the Nasdaq Composite edged up 0.1%, to 7812.01. For the week, the Dow rose less than 0.1%, the S&P 500 rose 0.8% and the Nasdaq advanced 1%.

 Kellogg shares jumped 3.2% after it raised its full-year guidance while Dish Network soared 15% after posting better-than-expected results.

“What we can trade on is earnings, and it’s been a good earnings season,” TD Ameritrade chief market strategist JJ Kinahan says.

“Until we have proof that something else is happening I think you have to continue on with that thought.”

Bond prices rose after the Labour Department showed nonfarm payrolls rose a seasonally adjusted 157,000 in July, less than the 190,000 that economists had expected and indicating the pace of hiring has slowed.

The unemployment rate fell to 3.9% from 4%, matching forecasts while average hourly earnings rose 2.7% from the year before.

The yield on the benchmark 10-year Treasury note fell the most in one month to 2.952% from 2.986% on Thursday.

Jobs figure disappoints
The slower pace of growth is “a slight disappointment,” Nomura Securities International head of fixed-income strategy George Goncalves says, Hourly earnings “are going up but they’re not going up faster,” he says.

Oil prices closed slightly lower on Friday and posted a small drop for the week as traders weighed conflicting supply signals.

US crude settled 0.7% lower at $US68.49 a barrel while Brent crude, the global benchmark, declined 0.3% to $US73.21 a barrel.

Stocks elsewhere mostly rose, with the Stoxx Europe 600 up 0.7%. On Friday, Frances CAC 40 rose 0.3%, Germanys DAX rose 0.5% and the UKs FTSE 100 surged 1.1%.

Major indexes in Asia struggled for traction as trade tensions continued to dominate sentiment.

The Shanghai Composite Index fell 1%, its largest one-week percentage decline since February. Hong Kong’s Hang Seng was down 0.1%, while Japan’s Nikkei Stock Average edged 0.1% higher.

“A common theme in recent weeks is for Asia and Europe to struggle on trade war headlines but for the US to break the shackles and shrug off any weakness and recover,” strategists at Deutsche Bank said.