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Research Market strategy
by Swissquote Analysts
Morning News

U.S. Trade Deficit Hit Decade High in October

Topic of the day

The U.S. trade deficit reached its highest level in 10 years in October, led in part by tax-cut-driven domestic demand and a potentially tariff-related fall in exports. The foreign-trade gap in goods and services rose 1.7% from the prior month to a seasonally adjusted $55.5 billion in October, the Commerce Department said Thursday. This is the largest deficit since October 2008. Imports grew 0.2% in October, while exports edged down 0.1%. The nonoil deficit is at a record level and "rising steadily," said Ian Shepherdson, chief economist at Pantheon Economics. "Pumping up domestic demand with fiscal easing and picking fights with trading partners does that," Mr. Shepherdson wrote in a note to clients. The jump in imports was driven by ramped-up demand in the U.S. Americans have more money in their pockets after the Trump administration's late-2017 tax cuts took effect at the beginning of this year, and when Americans shop, they tend to buy foreign-made goods. On top of that, American wholesalers and manufacturers have experienced supply constraints this year, partly stemming from a shortage of qualified truck drivers to move goods around the country. This may encourage further importing by domestic buyers. The drop in exports, meanwhile, was partly driven by a decline in soybean exports, which had contributed significantly to economic growth this year following a surge of exported soybeans ahead of looming tariffs.

Swiss stocks

The SMI joined stock markets in a worldwide slump Thursday, falling 3.1 percent to 8,660 points. Market participants fear the arrest in Canada of Meng Wanzhou, CFO of Huawei and daughter of its founder, could re-ignite the US-China trade dispute. The familiar European worries still haunt markets too: Brexit, the riots in France and the EU -Italy budget dispute. All 20 SMI components closed down. Bank stocks were again under pressure from falling yields, with 10-year US Treasury yields falling around 12 basis points. Credit Suisse slid 5.8 percent, Julius Baer 5.4 percent and UBS 4.9 percent. Even Lonza slid 5.1percent. Lonza had gained around 20 percent since the start of the year, while the SMI had slid more than 8 percent in the period. The defensive heavyweights were unable to benefit from their status as safe havens, with Nestle achieving the best performance of the three, falling only 2.1 percent, while Novartis slid 3.3 percent and Roche 2.7 percent.

International markets

Europe

he Stoxx Europe 600 index closed down 3.1% at 343.31, dropping to a two-year low on heightened fears of U.S.-China trade tensions. Concerns have been exacerbated by the arrest of Meng Wanzhou, the CFO of Huawei, in Canada, which sparked protests from China. "The rapidly dwindling good-feeling towards the U.S. and China's vague trade-war ceasefire turned actively hostile on Thursday," said Spreadex. Key equity indexes in Germany, France and the U.K. all fell to two-year lows, dropping 3.5%, 3.3% and 3.2%, respectively. Financial, auto maker, construction, mining and oil stocks all tumbled, with the latter hit by sharp falls in crude oil prices as OPEC ministers discuss a production cut. Precious metal miners were among the few risers as gold prices rose. Italy's FTSE MIB fell 3.5% and Spain's Ibex 35 by 2.75%.

United States

U.S. stocks fell sharply intraday as the arrest of a top Chinese technology executive and a decline in oil prices exacerbated the concerns about global growth that have rattled markets in recent weeks. The Dow Jones Industrial Average slid 438 points, or 1.8%, to 24585, after earlier tumbling as much as 785 points, and the S&P 500 lost 1.6%. Both indexes slid back into the red for the year. The Nasdaq Composite declined 0.8%, cutting the technology-heavy index's gains for 2018 to 2.8%. Nine of the 11 sectors in the S&P 500 traded lower on the day. Caterpillar and Apple, which are sensitive to trade-related headlines, fell at least 1.5%. And Chevron and Exxon slumped more than 2% as U.S. crude oil prices resumed their slide, falling 2.6%. The losses put the major indexes on course for their largest two-day point and percentage declines since Oct. 11. "Everything feels out of control right now," said an equity sales trader at R.W. Baird & Co. "Clients are starting to get more jittery."

Asia

Asian stocks remain widely higher Friday morning-though modestly so-after 2 days of across-the-board declines following the US slump on Tuesday. That market stabilized overnight following a Wednesday holiday. Equities across the Pacific are trying to end an up-and-down week-kicked off by big gains on the US-China trade truce-on an up note. But the muted Asian gains highlight ongoing caution.

Bonds

The nearly monthlong rally in U.S. government bonds showed no signs of slowing intraday as investors found new reasons to pile into safer assets. In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 2.854%, according to Tradeweb, compared with 2.921% Tuesday. Yields fall when bond prices rise. Yields declined anew in the overnight session as traders reacted to the arrest by Canadian authorities of Huawei Technologies's chief financial officer at the request of the U.S. - an unexpected development that some analysts said could further weigh on U.S.-China trade talks.

Analysis

UBS downgrades Bayer target to 110 (122) EUR - Buy
HSBC downgrades Glaxosmithkline target to 1.820 (2.000) p - Buy
Warburg downgrades Daimler target to 57 (65) EUR - Hold
UBS upgrades Air Liquide to Buy (Neutral) - Target 117 EUR


Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors.

 
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