The ABCs of tariff hikes have the Dow down 600+

MON, MAY 13, 2019

YOUR AFTERNOON NEWS UPDATE AND MARKET ACTION FROM CNBC

AS OF MON, MAY 13, 2019 • 12:02 ET

DJIA		25357.77
		-2.25%	-584.60

S&P 500		2814.80
		-2.31%	-66.60

NASDAQ		7667.26
		-3.15%	-249.68

EDITOR'S NOTE

There's been a dizzying array of developments whacking stocks today; the Dow has been down nearly 640 points at the (so far) lows.

For starters, the news coming out of the weekend wasn't great. President Trump tweeted on Saturday that China should "act now" on a trade deal or else face a "far worse" offer in his second term. Larry Kudlow on Sunday then acknowledged that in terms of the tariff hikes we did on Friday, "both sides will suffer on this."

That was enough to send global markets and U.S. futures down about 1%. Even the talk about Trump and Xi meeting at the G20 in June didn't help sentiment much.

But things really took a turn for the worse right around 8:30am ET when China announced it will raise tariffs on $60 billion of U.S. imports, beginning June 1. The new higher tariffs will largely hit farmers and affect thousands of products including "peanuts, sugar, wheat, chicken, and turkey." That's a direct blow to Trump's base.

Shortly thereafter, the editor of China's state-affiliated Global Times, Hu Xijin, tweeted: "China may stop purchasing US agricultural products and energy, reduce Boeing orders and restrict US service trade with China. Many Chinese scholars are discussing the possibility of dumping US Treasuries and how to do it specifically." Allrighty then!

Is dumping Treasuries a real threat? Well, U.S. Treasury yields are actually falling today, given the global selloff--the 10-year yield is back below 2.4%. Plus, China's buying of Treasuries is linked to its efforts to keep its currency weak, which is how it built up its trillion dollars worth of U.S. reserves in the first place.

A bigger concern is if China were to actually reduce its Boeing orders--the company's shares are down another 4% today. The "ABCs," as Jim Cramer likes to call them, of Chinese exposure are all hit hard: Apple is down more than 5%, and Caterpillar is down about 5% as of this writing.

Oh, and just before 10 a.m., word that China will raise tariffs on imports of U.S. rare earth metals also hit the wires. Whew!

The U.S. meanwhile isn't sitting still. Even before Friday's tariff hike on roughly $200 billion of Chinese imports, Trump has been threatening to raise tariffs on the remaining $300 billion or so. The tariffs that went into effect Friday alone are likely to cut U.S. GDP by 0.5 points a year, according to Strategas (we'll speak to Dan Clifton about this today). And let's not forget, the President's separate decision on auto tariffs is due Saturday, so this list may just keep growing.

Lots to discuss at 1 p.m. today. See you then!!

Kelly

P.S. Uber is down 10% today, to just over $37. That ain't helping!

Kelly Evans

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