SELLING IN CHINA UNSETTLES GLOBAL STOCKS THIS MORNING ON TARIFF THREATS -- BUT US STOCK INDEXES ARE RECOVERING FROM EARLY SELLING -- MATERIAL STOCKS ARE DAY'S WEAKEST SECTOR -- TECHNOLOGY SPDR AND QQQ BOUNCE OFF 50-DAY LINES TO LEAD MARKET RECOVERY
TARIFF THREATS PUSH CHINESE MARKETS LOWER ... Threats of higher tariffs on Chinese imports, combined with Chinese threats of retaliation, put international markets on the defensive today. It started in Asia, spread to Europe, and caused a lower stock opening here. China took the biggest hit. The red line in Chart 1 shows the Deutsche X-Trackers CSI 300 China A-Shares ETF (ASHR) falling more than 2% today to the lowest close in more than a year. That helped pull emerging market stocks and currencies lower. The green line in Chart 1 shows the WisdomTree Chinese Yuan Fund (CYB) also falling to the lowest level for the year. The falling yuan contributed to another drop in the price of copper which is trading near a 52-week low. In Europe, export-oriented countries like Germany led the day's decline there. A modest dip in global bond yields reflected some safe haven buying as well. And as usually happens when global markets are under stress, money flowed into the U.S. dollar. That weakened stocks tied to materials, while export-oriented industrials lagged behind in morning trading. The good news is that stock indexes in the states are trying to recover from their earlier losses. Technology stocks are leading the way.
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Chart 1
MATERIALS GAP LOWER ... Chart 2 shows the Materials Sector SPDR (XLB) gapping down below its 50-day and 200-day moving averages. That's not surprising considering that materials are very sensitive to international trade and the direction of commodity prices. The XLB was led lower by commodity chemicals, copper, and steel stocks. DowDuPont (DWDP) is the biggest percentage loser in the Dow. Other sector laggards are energy, industrials, and financials. A dip in bond yields may be weighing on financials, while helping boost consumer staples and utilities. Technology stocks are leading this afternoon's stock rally.
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Chart 2
TECHNOLOGY ETF AND QQQ HOLD 50-DAY LINES -- SEMIS ARE ALSO REBOUNDING ... Technology stocks, which took a hit over the last week, are leading the market higher today. Chart 3 shows the Technology Sector SPDR (XLK) bouncing off its 50-day average and a rising trendline drawn under its April/June lows. Another strong day in Apple is certainly helping. The technology rebound is also making the Nasdaq the day's strongest market. Chart 4 shows the Invesco Nasdaq 100 (QQQ) bouncing off its 50-day average as well. A 12% rebound in Tesla is leading the QQQ higher, along with Apple, Amazon.com, Facebook, and Microsoft. Semiconductors continue to support the technology rebound as well. Chart 5 shows the PHLX Semiconductor iShares (SOXX) trading over its 50-day line today. The SOXX continues to trade over its 200-day moving average which is keeping its uptrend intact. That's usually a good sign for the technology sector and the rest of the market.
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Chart 3
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Chart 4
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Chart 5
STOCKS INDEXES ARE BOUNCING BACK ... Going into the afternoon, all market indexes except the Dow are back in positive territory. And the Dow is getting close. Chart 6, shows the Dow Industrials very close to positive territory after regaining most of its morning loss. The Dow has slipped below its June peak, but remains well above underlying support levels. Its five biggest percentage gainers are Apple, Nike, P&G, Microsoft, and Cisco. Apple is up 3%, while the other four leaders are up more than 1%. The S&P 500 is doing even better. Chart 7 shows the SPX reversing its morning loss to trade in positive territory. It also found support along its June high which is a positive sign. Small caps, which have less reliance on foreign trade, are also helping lead this afternoon's rebound. Chart 8 shows the Russell 2000 Small Cap Index ($RUT) regaining its 50-day average while remaining above its late June low. That's keeping its uptrend intact as well. A higher close today by the major stock indexes in the states would be an encouraging sign. And might help stabilize foreign markets tomorrow.
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Chart 6
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Chart 7
