Stocks had a volatile session Friday, as investors responded to mixed economic data and reports that the White House is weighing whether to limit investment flows into China.
The timing of the move surprised investors, because Trump surrogates in recent days had painted a more optimistic picture of reaching a deal with China ahead of high-level discussions early next month.
The Dow (INDU) turned negative following Bloomberg’s report of the possible limitations of US investor money into China.
Stocks closed lower for both the day and the week. The Dow finished 77 points, or 0.2% lower, while the S&P 500 (SPX) closed down 0.5%. The Nasdaq Composite (COMP) ended 1.1% lower, making it the biggest loser of the major indexes. It was the worst week for the Nasdaq since the beginning of August.
“Everyone is confused what is happening right now before these high-level talks,” Edward Moya, a senior analysts at Oanda told CNN. “It’s a blind threat and we don’t actually know when this will manifest.”
Representatives from Treasury, the US Trade Representative Office and the Securities and Exchange Commission did not immediately respond to comment.
“The trade war has just transformed its narrative altogether and it has turned into insanity,” wrote Naeem Aslam, chief market analyst at ThinkMarkets FX in a note. “The recent news about Trump administration possibly stopping US investors to invest in China has brought the biggest nightmare of the year. If this becomes a reality, the retaliation action by China is going to be far more significant.”
US stocks finished modestly lower on Thursday, while the market remained relatively agnostic towards the impeachment inquiry into President Donald Trump.
In economic data, the US personal consumption expenditure index, which is the Federal Reserve’s preferred measure of inflation, matched expectations Friday. The core PCE index grew 1.8% August versus a year ago, in line with forecasts and close to the Fed’s 2% inflation target.
This supports the argument that no further interest rate cuts are necessary to meet the inflation target, which could be seen as a negative by the stock market.
Personal income grew by 0.4% in August, also in line with expectations.
Durable goods orders looked less rosy, dropping 1% in August and undercutting expectations, reflecting a weakened manufacturing sector in the United States.
The University of Michigan’s consumer sentiment index show a slight improvement in September. The index came in at 93.2, compared with 92 expected.
In August, the sentiment measure found last month that more people are beginning to worry about the trade war, leading to the largest monthly drop since December 2012.
Oil prices slide
Oil prices fell Friday on some signs that stability could return to the Middle East.
Saudi Arabia and Yemen agreed to a partial cease-fire Friday, according to a report from The Wall Street Journal. Iran’s release of a British tanker has also eased tensions.
US oil prices settled 0.9% lower at $55.91 a barrel, while Brent Crude, the international benchmark, settled 1.3% lower at $61.91 a barrel.
Two weeks ago, Saudi oil production facilities were attacked, which sent oil prices soaring the most in a decade. While the attack was claimed by Yemen’s Houthi rebels, various Western nations blamed Iran. Rouhani denied his country’s involvement in the attack at a press conference in New York City Friday morning, asking the accusers to show evidence.
A deceleration in China’s economy continues to weigh on oil prices too.
Nevertheless, “we could be near a key bottom for oil prices,” said Edward Moya, senior market analyst for Oanda, in a note, adding that tensions could always heighten again, which push prices higher at a moments notice.