US pre-open: Stocks set for heavy losses as Cohn resignation rattles markets

US futures pointed to heavy losses at the open on Wednesday as investors react to news that President Trump's chief economic advisor, Gary Cohn, has resigned, reigniting fears of a trade war.

At 1215 GMT, Dow Jones Industrial Average futures were down 1.2%, while S&P 500 and Nasdaq futures were down 0.8%. Stocks ended in the black on Tuesday as Cohn's resignation was announced after the close of US markets.

Cohn, an advocate of free trade widely seen as a calming influence on Trump, quit over the president's decision to impose tariffs on steel and aluminium imports.

Neil Wilson, senior market analyst at ETX Capital, said: "The implication is that without the restraining influence of Cohn on Trump, the president will now have a free hand to press ahead with further tariffs and generally up the ante on trade. Clearly he fought back on trade and lost. This in itself does not bode well for risk despite that small boost we saw on news that North Korea could consider de-nuking.

"Markets had been pretty sanguine about the tariffs - by yesterday’s close US equities were still higher than they were when Trump first announced his tariffs. The prospect of a full-on trade war was talked down and regarded as a small tail risk. Many felt Cohn and others would stop Trump from launching an all-out trade war. Markets may have been over-confident - the decline on the S&P 500 and Dow post Cohn’s resignation suggests so. Futures point to a lower open but we would need a close below 2,650 on the S&P 500 for the bears to really take charge as this would call for a move to below 2,550 and a retest of the early February lows."

According to a Bloomberg report, Trump's administration is considering a wide range of import tariffs on Chinese goods from shoes and clothing to consumer electronics, and a clampdown on Chinese investments in the US.

The European Union responded to Trump's plans on Wednesday, with commissioner for trade Cecilia Malmstrom saying that the EU is working hard to ensure any tariffs imposed comply with WTO rules. Malmstrom tweeted: "We have made it clear that a move that hurts the EU and puts thousands of European jobs in jeopardy will be met with a firm and proportionate response."

She said at a press conference that the EU is discussing which US products would be hit with tariffs if Trump goes ahead with his plans. Higher import duties on bourbon, peanut butter, cranberries, orange juice, steel, and industrial products were being discussed.

On the data front, the ADP employment report, widely considered a pre-cursor to the non-farm payrolls report on Friday, is at 1315 GMT, while trade balance figures and non-farm productivity are at 1330 GMT.

In corporate news, H&R Block was likely to be in focus after the company posted a bigger-than-expected third-quarter loss on Tuesday, while Urban Outfitters could be active after its fourth-quarter earnings a day earlier.

Elsewhere, technology company Inovalon was set to be in the spotlight as it announced the acquisition of Ability Network for $1.2bn.