Wall Street roiled for second day threat of global trade war

Wall Street opened lower, extended losses before turning in early afternoon trade and ending mostly higher.

At about 4pm Friday in New York, the Dow was 0.3 per cent lower. The S&P 500 was rose 0.5 per cent and the Nasdaq was up 1.1 per cent. The US listed shares of BHP Billiton slid 0.6 per cent, while Rio Tinto fell 2.2 per cent.

ASX futures were up 12 points at about 8.15am AEDT Saturday. The ASX had its worst session in three weeks on Friday.

In Europe, shares closed at their lowest in six months. The Stoxx 600 benchmark was down 2.1 per cent. London's FTSE was 1.5 per cent lower, France's CAC 40 slid 2.4 per cent and Germany's DAX tumbled 2.3 per cent. The FTSE's declines were paced by a 3.8 per cent drop in Rio Tinto; BHP Billiton fell 3.1 per cent. Anglo American lost 3.1 per cent and Glencore 3 per cent.

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018

"Markets are spooked more by the aggressiveness of the message and by its potential of sparking an extended trade war rather than just by the scope of the measures' economic impact," JCI Capital fund manager Alessandro Balsotti told Reuters.

All sectors in Europe closed in negative territory, with autos down 2.3 per cent, weighed down by a near-6 per cent slump in Italian-American car maker Fiat Chrysler on concerns that the US tariff move could increase its raw material costs.

Elsewhere, Germany's Volkswagen, Daimler and BMW and France's Peugeot fell between 1.6 to 2.4 per cent.

Steel and aluminium stocks in Europe were also generally lower, with ArcelorMittal, Salzgitter and Norsk Hydro all down 0.9 to 5.2 per cent.

Trump officially has until April 11 to announce his final decision.

We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!
— Donald J. Trump (@realDonaldTrump) March 2, 2018

President Trump enhanced his protectionist tilt with two early Friday morning tweets.

"We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON'T HAVE STEEL, YOU DON'T HAVE A COUNTRY!"

Trump also tweeted: "When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win."

No exemptions

The Dow cut most of its early losses. Bloomberg

In an interview on Bloomberg Television, US Commerce Secretary Wilbur Ross said President Trump appears to favour a global tariff with no exemptions.

"We have to deal with a global problem on a global basis" to stamp out "this recurring phenomenon" of shipments going through other nations to evade tariffs, Mr Ross said.

Trump "is going to fight back", Mr Ross said earlier on CNBC. "In any war there may be a few casualties. That just comes with the nature of the beast."

Ross used a can of Campbell's Soup to stress his point about what he calls insignificant price increases from Trump's tariffs.

"In a can of Campbell's Soup, there are about 2.6 pennies worth of steel. So if that goes up by 25 per cent, that's about six-tenths of 1 cent on the price on a can of Campbell's Soup," Ross contended. "I just bought this can today at a 7-Eleven ... and it priced at a $US1.99. Who in the world is going to be too bothered?"

LPL Financial sought to downplay the potential impact of tariffs on steel and aluminium imports to the US, noting that the two materials account for roughly 2 per cent of world trade, so the direct impact on the global economy would be small and that China is not a major exporter of steel to the US.

"Initial estimates suggest that tariffs, if enacted and sustained over the course of one year, could reduce GDP by up to 0.25 per cent this year," LPL said. "Despite this possibility, it is important to remember that the S&P 500 Index was just up 15 consecutive months and some volatility is quite normal at this stage of the economic cycle."

Buy the dip: Fundstrat

Fundstrat Global's Tom Lee said equity investors were "over-reacting".

"We are buyers of this pullback," Mr Lee said. "The equity environment is more challenging than 2017, and as noted above, is characterised by greater scepticism of Washington (deficits, tax cuts, etc), synchronised normalisation by central banks and inflation increases—however, we view these as healthy transitions and supportive of earnings growth (which is driven by nominal GDP, as much as real growth). Moreover, we think bonds are less attractive in this environment, meaning equities outperform."

The yield on the US 10-year note leapt 5 basis points to 2.86 per cent, basically reversing its retreat the previous session. The spot dollar index declined 0.4 per cent. The Australian dollar edged 0.1 per cent higher.

Capital Economics' Andrew Kenningham said the fact that the potential US tariffs are being justified under a flimsy pretext of national security increases the risks of retaliation.

"The real worry is that this marks a turning point in US trade policy, away from bluster and brinkmanship towards actual protectionist measures," Mr Kenningham said in a note. "We have consistently warned that this would become more likely as the mid-term and presidential elections approach. If so, President Trump may discover that, contrary to his tweet this morning, there are rarely any winners from trade wars."

Aluminium mixed, iron ore slides

Three-month aluminium on the London Metal Exchange ended up 0.1 per cent at $US2149 a tonne, bucking a mostly falling trend in base metals. Aluminium on the Shanghai Futures Exchange (ShFE) closed down 0.1 per cent after touching a two-week high.

The "import duty increase on aluminium products will have a small impact on China's aluminium export and domestic market," Argonaut Securities said in a note.

"China's aluminium products exports to the US accounted for around 14 per cent of its total exports in 2017 and represent only 1 per cent of China's total aluminium production."

Spot aluminium premiums in the United States spiked to the highest in almost three years as buyers sought to secure metal before the tariffs come into force.

*A global aluminium producer has offered Japanese buyers a premium of $US133 per tonne for the April to June quarter, up 29 per cent from the current quarter.

Chinese steel futures retreated on Friday after a five-day rally, though traders pointed more to rising inventories than the US tariff plans.

The most-active rebar on the Shanghai Futures Exchange closed down 0.3 per cent at 4024 yuan ($US634) a tonne, after touching a nearly three-year peak of 4062 yuan on Thursday.

Expectations that more Chinese cities could curb steel output after top steel-producing Tangshan announced it would extend production restrictions beyond the end of the heating season on March 15 had buoyed steel prices this week, with raw materials iron ore and coking coal also hitting multi-week highs.

But steel's pullback on Friday also weighed on iron ore and coking coal prices.

The spot price for iron ore fell 1.3 per cent to $US78.34 a tonne, according to Metal Bulletin.

With Reuters

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