US open: Stocks slip as trade concerns mount

Wall Street got off to a subdued start on Thursday, as concerns about international trade weighed on markets, eBay and American Express disappointed with second-quarter numbers and there was another twist in the battle for control of 21st Century Fox.

At 1600 BST the Dow Jones Industrial Average was off just 0.3% at 25,105.73, the S&P 500 was down 0.41% at 2,803.68 and the Nasdaq was 0.27% lower at 7,833.62.

Concerns are growing that a trade war could erupt between the European Union and the US. EU officials are travelling to Washington next week to discuss trade, but US President Donald Trump warned that the bloc faces “tremendous retribution” if the talks do not work out, with EU trade commissioners also saying they were drawing up their own naughty list of potential tariffs.

Trump believes that the EU’s 10% tariff on cars is unfair compared to America’s 2.5% tariff, but the EU will only be able to reduce its rate if it does so for all World Trade Organization members or agrees a wide-reaching bilateral accord with the US.

Washington has already imposed tariffs on a range of Chinese goods, prompting Beijing to respond with its own tariffs and a complaint to the WTO. The two sides continue to discuss trade, but there were reports that the talks have stalled

Holger Schmieding, chief economist at Berenberg, said: “A transatlantic trade war stoked by Donald Trump poses the biggest threat to our modestly positive outlook for global growth and financial markets. His disdain for rules, allies and multilateral institutions sows uncertainty that is bad for business.

“We do not expect Trump to follow up on the worst of his threats and look for businesses to get used to a somewhat elevated level of noise over time. However, if these assumptions are wrong, escalating trade wars could push financial markets into risk-off mode, resulting in a more subdued outlook for equities, lower bond yields and further safe haven flows into the US dollar.”

The US dollar index has made another one year high, up 0.4% to 95.49, in the wake of Federal Reserve chief Jerome Powell’s recent comments to US lawmakers and helped by the latest weekly jobless claims figure coming in at its lowest level since 1969.

This, noted Michael Hewson, chief markets analyst at CMC, has helped push US 2 year yields above 2.6%, a 10 year high, as markets increasingly price in significantly higher US rates in the short term. Oil prices fell as US inventory rose, with WTI down 1% at $67.07.

Adding to the economic picture was the key Philly Fed report, which provides a snapshot of American industry and was published before the opening bell. It provided a mixed picture. The main index shot up in July, to 25.7 from 19.9, well above forecasts of around 21.5, while new orders rocked from 17.9 to 31.4.

But Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that the data was not as strong as it initially looked. “Such gyratiosns are not unusal. In contrast, the [Philly Fed’s] employment index, which tends to be much less volatile than new orders, dropped sharply to 16.8 from 30.4. This might be nothing more than noise but a second straight soft number next month would be disconcerting.”

Elsewhere, data from the US Labor Department showed that jobless claims dropped to 207,000 in the week ending July 14, the lowest level since 1969 – though the 4 July holiday and the car industry’s annual retooling shutdowns were making the numbers less predicatable, warned Shepherdson.

On the corporate front, IBM beat Wall Street expectations with both earnings and revenues.

Shares in eBay, which reported after close on Wednesday, softened when the market reopened as the online marketplace missed analyst expectations for second-quarter revenues and forecast underwhelming third-quarter numbers after a poor performance at its online ticket market place StubHub.

Also missing expectations was American Express. It posted forecast-beating earnings but revenues fell short.

The biggest corporate story was Comcast’s bid for 21st Century Fox. The US network said it was no longer pursuing Fox and would instead focus on bidding for UK broadcaster Sky. Last month, Fox agreed to sell its entertainment assets to Disney for $38 a share. The assets include Sky, of which Fox owns 39%.

Last week Comcast upped its bid for Sky to £14.74 a share, trumping a sweetened £14 per share bid from Rupert Murdoch’s Fox for the 61% share in Sky it does not already own.

Said Hewson of Comcast’s decision: “While this seems a sensible decision, given concerns over a bidding war with Disney, the Sky assets are probably worth less given that it wouldn’t have access to the Disney catalogue in the event Disney just acquires the Fox assets.”