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James Hyerczyk
U.S. - China Trade Dispute

The major U.S. stock indexes fell sharply on Thursday, but late session bargain-hunting helped them recover some of the losses into the close. Sellers hit the futures markets hard in the pre-market session, triggering a gap lower opening in the cash market that expanded following the release of weaker-than-expected U.S. manufacturing and services data.

In the cash market, the benchmark S&P 500 Index settled at 2822.24, down 34.03 or -1.23%. The blue chip Dow Jones Industrial Average closed at 25490.47, down 286.14 or -1.11% and the technology-based NASDAQ Composite finished at 7628.28, down 122.56 or -1.64%.

Trade Tensions Drive Early Weakness

Renewed concerns over U.S.-China trade relations were the catalysts behind the early weakness as investors started to price in the possibility there would be no short-term trade deal and that the current trade dispute could escalate into the end of the year or beyond.

In the meantime, the fallout from the U.S. blacklisting of telecom giant Huawei continued. On Thursday, U.K.-based chip designer Arm Holdings said it suspended business with the company. Panasonic also said it stopped shipping some smartphone components to Huawei. Vodaphone and BT Group, the biggest phone carriers in the U.K., said they are removing Huawei phones from their 5G network plans.

China also started to push back against the U.S. for its move against Huawei with Ministry of Commerce spokesperson Gao Feng saying, “If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.”

“The U.S. … crackdown on Chinese companies not only seriously damages the normal commercial cooperation between both countries, but it also forms a great threat to the security of the global industrial and supply chain,” Feng added.

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Losses Accelerated Following Release of Weak U.S. Data

The selling pressure increased following reports that showed a slowdown in the U.S. manufacturing and services sectors. The raised fears that the U.S.-China trade dispute is slowing the economy.

Data from IHS Markit released Thursday showed U.S. manufacturer growth hit a multiyear low in May. The U.S. manufacturing PMI was 50.6 in May, the lowest level since September 2009.

“Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence,” said Chris Williamson, Markit’s chief business economist.

U.S. overall business activity growth also weakened to a three-year low as the seasonally adjusted IHS Markit Flash U.S. Composite PMI Output Index dropped to 50.9 in May, indicating the slowest expansion since May 2016.

“The slowdown has been led by manufacturing, but shows signs of spreading to services…Trade wars remained top of the list of concerns among manufacturers, alongside signs of slower sales and weaker economic growth both at home and in key export markets,” Williamson said.

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