U.S. Stocks Set To Open Lower As U.S. – China Tensions Increase

U.S. Wants To Remove Global Supply Chains From China

S&P 500 futures are pointing to a lower open following Friday’s downside move. The reason for additional downside is the deterioration in U.S. – China relations which can hurt the world economy.

According to reports, the U.S. wants to re-direct global industrial supply chains out of China to other, friendlier countries, in order to reduce dependence on China.

Potential new tariffs, which caused the S&P 500 to dive almost 3% on Friday, are also expected to be in play as Washington prepares its new measures against China.

The deterioration of U.S. – China relations comes at inopportune time as the world economy tries to rebound following the acute phase of the crisis caused by coronavirus containment measures, so it’s not surprising that markets are very nervous about the continuation of the trade war between the world’s biggest economies.

PMI Data Shows Problems In Various Parts Of The Globe

In Spain, Manufacturing PMI declined to 30.8 in April from 45.7 in March. Spain had a very strict lockdown, and its economic cost will be very material.

In South Korea, which is considered to be an example on how to fight against coronavirus, PMI declined to 41.6 in April. While the country itself was successful in containing the virus with the help of mass testing, its export-oriented economy suffered as demand declined elsewhere in the world.

Widespread economic problems may ultimately lead to lower earnings for those U.S. companies who export their production, and put pressure on the whole U.S. market. At this point, the size of this negative impact is yet to be determined, but it’s certainly an important thing to watch in the coming months.

Another Week Of Economic Data Starts With Factory Orders For March

Later in the day, the U.S. will report Factory Orders data for March. Analysts expect that Factory Orders will show a decline of 9.8%.

As usual during the current crisis, employment reports present the biggest interest. On Thursday, the U.S. will provide a new update on Initial Jobless Claims, which is expected to show that 3 million Americans filed for unemployment benefits.

On Friday, traders and investors will have a chance to evaluate the Unemployment Rate which is set to jump from 4.4% to 16%. The employment reports pose an additional risk for the market although it remains to be seen whether market participants believe that the upcoming bad news are “priced in” current stock valuations.