Stock-market futures slip as China seen halting purchases of soybeans, raising specter of escalating trade tensions

Stock-market futures slip as China seen halting purchases of soybeans, raising specter of escalating trade tensions

Investors also watch U.S. protests

U.S. stock-index futures edged lower Monday morning, amid signs of rising Sino-American trade tensions, with investors also watching violent protests that reverberated throughout the country.

The clashes between police and protesters come while the U.S., and much of the world, is in the throes of the coronavirus pandemic that has rocked the domestic economy to its core.

What are stock benchmarks doing?

Futures for the Dow Jones Industrial Average YMM20, 0.15% YM00, 0.14% 46 points, or 0.2%, lower at 25,332. Those for the S&P 500 index ESM20, 0.03% ES00, 0.03% were 7.50 points, or 0.3%, lower at 3,033.75, while Nasdaq-100 futures NQM20, -0.25% NQ00, -0.26% were trading 48 points lower at 9,512.25, a decline of 0.5%.

On Friday, the Dow DJIA, -0.06% booked a weekly gain of 3.8%, while the S&P 500 SPX, +0.48% finished 3% higher and the Nasdaq Composite Index COMP, +1.29% ended the period 1.8% higher. In May, the Dow logged a 4.3% gain, the S&P 500 climbed 4.5%, while the Nasdaq marked a 6.8% return on the month.

What’s driving the market?

Evidence of rising tensions between the U.S. and China and social unrest in America helped to create some headwinds for markets early Monday.

Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods, including soybeans as Beijing, Bloomberg News reported on Monday, citing people familiar.

The moves come after President Donald Trump on Friday announced a number of measures, including ending Hong Kong’s special status, to address what he described as a number of violations. Those include Beijing’s handling of COVID-19, which was first identified in Wuhan in December.

Trump’s measures against China last week, however, were seen as less severe as feared and come as Beijing tightened its control over Hong Kong, implementing a new national-security law.

“Widespread relief in financial markets that President Trump stopped short of announcing damaging sanctions on China buoyed risk assets on the first trading day of June,” wrote Raffi Boyadjian, senior investment analyst at XM, in a Monday research report.

The Bloomberg report of a halt in certain farm purchases raises the threat of an erosion of a hard-fought phase-one trade agreement between the U.S. and China that was struck earlier this year.

Upbeat economic data from China has so far helped to limit the damage from the reports of trade tensions. The Caixin China manufacturing index was at 50.7 for May, compared with an April reading of 49.4. A reading of 50 or better indicates improving conditions, while those below that level signal contraction.

Meanwhile, A series of protests erupted across major cities from Los Angeles to New York after George Floyd, a black man, died last Monday following a confrontation with police in Minneapolis in which one officer, Derek Chauvin, was captured on video driving his knee onto Floyd’s neck until the handcuffed man lost consciousness and later died.

Angry clashes between civilians and law enforcement, including fires near the White House, aren’t expected to have long-term economic implications, but the protests come as many retailers and businesses are still swooning from the pandemic and were caught up in looting and vandalism that ensued during the weekend demonstrations.

“The direct economic impact of the protests is small, at least so far,” Mark Zandi, chief economist of Moody’s Analytics, told MarketWatch. However, he said that the near-term damage to the psyche of consumers and the business community may be more substantial.

“Just when people were starting to come out of the proverbial bunkers, the protests may be too much for them, and they will go back in,” he said. “The protests are also symptomatic of just how deep the economic problems and racial tensions go in our country,” the economist said.

Experts also worry that the throngs of people gathering may also result in a jump in cases of COVID-19, just as public health officials hoped they were getting a handle on the viral outbreak.

“With the unrest getting worse and turning violent, there’s a growing fear that the riots and looting will not only hamper businesses’ efforts to return to normality after weeks of shutdowns, but the large crowd gatherings will cause a spike in coronavirus cases just as they are starting to come down, wrote Boyadjian.

“It’s a triple whammy of protests, plus raging pandemic, plus economic instability. Those three things together make for a perfect storm of viral transmission,” Peter Chin-Hong, an infectious disease specialist at the University of California, San Francisco, was quoted as telling the Wall Street Journal.

However, the market may take heart in the fact that states continue to unlock their economies from measures implemented to stem the spread of the deadly disease. All 50 states are under some stage of reopening from forced shutdowns due to the pandemic.

Looking ahead, investors will be watching for domestic economic data, including Markit manufacturing PMIs for May due at 9:45 a.m. Eastern, and the more closely followed manufacturing index at 10 a.m. from the Institute of Supply Management. A reading of construction spending for April also is due at the same time.

Which stocks are in focus?

  • Protests slammed the stores of major retailers owned by Target Corp. TGT, +3.29%, Walmart Inc. WMT, +0.29% and sports apparel giant Nike Inc. NKE, +0.37%.
  • Apple Inc. AAPL, -0.09% and CVS Health Corp. CVS, -1.48% also said it would temporarily close some of its stores due to looting fears.

How are other markets trading?

West Texas Intermediate crude futures for July delivery CLN20, -0.34% lost 27 cents, or 0.8%, at $35.22 a barrel.

August gold GCM20, -0.28% advanced headed $4.30, or 0.3%, lower to trade at $1,747.40 an ounce on the New York Mercantile Exchange.

In global equities, the Stoxx Europe 600 SXXP, 0.80% index were trading 0.7% higher, while the FTSE 100 index UKX, 1.21% traded 1.1% higher.

In Asia, the Nikkei NIK, +0.84% added 0.8%, and Hong Kong’s Hang Seng Index HSI, +3.35% closed 3.4% higher, on some relief from Trump’s Friday announcement.

The 10-year Treasury note yield TMUBMUSD10Y, 0.664% was 1.1 basis points higher at 0.66%.

The greenback lost ground against its major rivals, with the ICE U.S. Dollar index DXY, -0.17% down about 0.2% at 98.197.

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