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Trade War Jitters Drive Stocks Lower, but Settlement Hopes Limit Losses

By:
James Hyerczyk
Published: Jun 18, 2018, 21:22 UTC

Stock market bargain-hunters came in to stop the price slide shortly after the regular session opening on the hopes that the two major economic powers would reach a settlement to prevent further tariffs.

U.S. Stock Indexes

U.S. stock indexes closed lower on Monday, pressured by lingering US-China trade tensions. The selling pressure was led by weakness in Boeing and Caterpillar, two stocks that could feel the brunt of the recent tariffs imposed by China on U.S. goods.

In the cash market the benchmark S&P 500 Index settled at 2773.87, down 5.79 or -0.21% and the blue chip Dow Jones Industrial Average closed at 24987.54, down 102.94 or -0.41%.

The telecom sector led the S&P 500 Index lower, while the worst-performing stock in the Dow was Intel. The Dow also extended its losing streak to five sessions, while the S&P posted its fourth straight day of losses.

Shares of Disney fell 1.6 percent after being downgraded by Pivotal Research Group. Intel dropped 3.4 percent after Northland Capital downgraded the stock to underperform from market perform.

The general tone was down most of the session although the S&P 500 Index and Dow did claw back most of its early loss. The catalyst behind the early selling was concerns over a potential trade war between the US and China, after President Trump announced that the U.S. would inflict tariffs that would impact up to $50 billion worth of Chinese goods, while China retaliated with Beijing announcing its own selection of duties on U.S. goods.

Bargain-hunters came in to stop the price slide shortly after the regular session opening on the hopes that the two major economic powers would reach a settlement to prevent further tariffs.

Gold

Gold futures finished slightly better on Monday on mostly technical factors after Friday’s steep sell-off. However, gains were limited by a stronger U.S. Dollar. Oversold technical indicators encouraged some speculative buying and bargain-hunting with some buyers continuing to bet on an escalation of the trade war between the U.S. and China.

August Comex gold futures settled at $1280.10, up $1.60 or +0.10 percent.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil posted a volatile session on Monday as investors positioned themselves ahead of the OPEC meeting in Vienna on June 22-23.

August WTI crude oil settled at $65.85, up $0.79 or +1.2 percent and August Brent finished the session at $75.32, up $1.88 or +2.6 percent.

Crude oil plunged early in the session on reports that a group led by OPEC and major OPEC producers, including Russia, planned to raise production by as much as 1 million barrels per day. While most traders expect a production hike, the market is still uncertain as to the amount and the timing of such a move.

It was fear of the unknown that encouraged short-sellers to aggressively cover positions, sending prices sharply higher for the day. Traders also raised issues about possible opposition to the production hike from Iran, Iraq and Venezuela.

Traders also reacted to reports that China could be planning to implement tariffs on U.S. crude oil. Since China is the largest buyer of U.S. oil, their absence could depress prices.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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