Escalating Trade War Adds Weight To “Sell In May”

By Glenn Dyer | More Articles by Glenn Dyer

So ‘sell in May and go away’? It’s an old adage for markets (the AMP’s Shane Oliver examined it last week), but Monday’s slump on Wall Street brought new focus to the saying and the thinking behind it.

But the idea of selling before the northern summer and buying back when the holidays have ended in early September doesn’t fit the bill this time – Monday’s fall and last week’s slide have been triggered by the deepening of the trade war between President Trump and his administration and the Chinese government and President Xi.

Last week, the Dow fell 2.12%, the S&P 500 lost 2.17% and the Nasdaq slid 3.03%.

On Monday the Dow tumbled 617.38 points, or 2.4%, to 25,324.99 and the S&P 500 index slumped 69.53 points, or 2.4%, to 2,811.87 and Nasdaq shed 269.92 points, or 3.4%, to 7,647.02, its biggest one-day loss for 2019.

The world’s key safe haven investment – US Treasury bonds saw yields fall to six-week lows, with 10-year yield (2.409%) falling below those of 6-month bills (2.42%), an inversion seen by many as a warning of a possible future recession.

Gold prices rose to a near three-month high at just over $US1,300 an ounce, but oil sold off by just over 1% to around $US60.80 despite reports that two Saudi tankers had been attacked in the Gulf.

The Aussie dollar ended around 69.40 – 45 Tuesday morning as the US dollar strengthened on the back of haven buying. The Australian currency and sharemarket are seen as proxies for China and is automatically sold down when tensions rise, as they are now.

The ASX 200 was set to open down more than 50 points to go with Monday’s 13 point dip.

After raising tariffs on $US200 billion worth of annual Chinese imports to 25% from 10% on Friday, the Trump administration said it was ready to impose higher tariffs on another roughly $US300 billion of goods, or nearly all the remaining products Americans buy from the world’s second-largest economy.

That was after the Chinese government added 25% tariffs to $US60 billion of US exports, defying Trump’s warning not to do so.

Wall Street losses eased at one stage after Trump told media during an afternoon Oval Office meeting with Hungarian Prime Minister Viktor Orban that he would meet Chinese President Xi Jinping at next month’s Group of 20 Summit and that he hadn’t made a decision on whether to impose tariffs on more Chinese goods.

The trade dramas saw stocks investors think are exposed to the row hit – shares of Apple fell 5.8%, AMD shares tumbled 6.2% and Intel shares fell 3.1%.

Apple shares were also undermined by a major loss on a case before the US Supreme Court that will allow a group of Apple App buyers sue the tech giant for claimed anti-trust violations.

The case involves Apple’s lucrative App story and if the suit is successful, will change the way Apps are delivered and paid for.

Uber shares lost another 10.7% on Monday to go with Friday’s opening day slide of 7.5%. The loss is now more than 18% in two days

Markets in Asia fell on Monday and will be weak again Tuesday following the Chinese tariff move.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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