20/06/2018 – Argonaut Morning Note

Global stocks dropped intraday as trade tensions between the U.S. and China intensified, sparking selling from Shanghai to New York. The Dow Jones Industrial Average tumbled 287 points, or 1.1%, to 24700. The S&P 500 fell 0.4% and the Nasdaq Composite fell 0.4%. Shares of industrial and materials companies, which analysts fear could take a heavy hit under a trade war, were the S&P 500's worst-performing sectors, falling 2% and 1.9%, respectively. Utilities, real estate and consumer staples-groups that investors often flock to in times of market volatility –  all climbed. The swings in the U.S. stock market came after Asian investors dumped Chinese stocks, sending the Shanghai Composite Index down to its lowest level in almost two years, and the Shenzhen A Share index shedding 5.8%. Investors also unloaded stocks elsewhere, and the Stoxx Europe 600 closed down 0.7%. The US gold price was down 0.3% to 1,274.40/t.

Fears that trade tensions between the U.S. and China could escalate weighed on European shares, with the Stoxx Europe 600 index closing down 0.7% at 383.21. Germany's DAX ended down 1.2%, with auto maker Volkswagen, engineering and steel company Thyssenkrupp, and technology firm Infineon, among the main losers. France's CAC 40 ended down 1.1%, while the U.K.'s FTSE 100 fell by less, closing down 0.4% but still pressured by a drop in heavyweight mining stocks. Italy's FTSE MIB and Spain's IBEX 35 closed down 0.1%

There were few places to hide for investors during Asian stock trading, with selling accelerating as China, Hong Kong and Taiwan returned from holiday and U.S. President Donald Trump asked for a list of a potential $200 billion more of tariffs on Chinese goods. With trade temperatures apparently nearing a boil, Chinese benchmarks sunk 4%-6% and iron-ore futures there falling similarly. Hong Kong equities were down nearly 3%, with the Hang Seng set to notch a 2018 closing low. Declines have topped 1% in most of the rest of the region, with Thailand off 2% and Vietnam nearly 4%. The Shanghai Composite Index was down 3.8% to its lowest in almost two years, and the Shenzhen A Share index plunged 5.8%. Investors also unloaded stocks from neighbouring indexes, with Taiwan's Taiex falling 1.7%.

An eight-point end-of-session adjustment lower was enough for Australia's stock benchmark to end slightly down for the day amid a rout in a number of other Asia Pacific markets as Oz continues a recent outperformance. The S&P/ASX 200 ended down 2 points at 6102.1 as several of the country's big banks gave up early gains and mining stocks continued to retreat with weaker metals prices. But energy stocks bounced on the overnight rebound in oil prices and Telstra rebounded 1.4% ahead of Wednesday's strategy update.

Base metal prices struggled on the London Metal Exchange. Zinc reported the largest fall of 2.3% to finish at 3,034/t. Aluminium and nickel both dropped 2.2% to finish at 2,172/t and 14,566/t, respectively. The 3-month copper contract continued to slide and was down 2.0%. Smaller losses were observed in lead and tin which finished at 2,398/t and 20,455/t, respectively. 

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