Market Outlook – July 12, 2018

Trade War Fears Halt U.S. Stocks’ Win Streak

 

With new tariffs looming, U.S. stocks snapped its four-session winning streak on Wednesday. The Trump administration announcement late Tuesday that it would assess 10% tariffs on a significantly larger $200 billion worth of Chinese goods.

The Dow Jones Industrial Average dropped by 219.21 points (-0.9%) and lost steam. The S&P 500 Index shed 19.82 points (-0.7%) while the Nasdaq Composite Index slid 42.79 points (-0.6%). In the broad S&P 500, all but one sector finished in the red. The sectors which are sensitive to trade issues – materials and industrials – led decliners. The energy sector had a steep drop of more than 2% as well. Only the utilities sector (+0.9%) posted a gain.

As expected, China said that the new levies are totally unacceptable. According to their Commerce ministry, the U.S. behavior is hurting not just China but the whole world.

South Korea Sees Huge Impact of Trade War

 

On Thursday, South Korea expressed concerns about the knock-on effect of the U.S.-China trade war. Asia’s fourth-largest economy warns that components and materials – “intermediate goods” – used in home appliances, computers and communications devices could be caught in the conflict.

The country’s trade ministry said the trade war could be “prolonged and spread.” It added that it would need to prepare responses for any eventuality. Their finance minister also warned that the dispute would present “serious downward risks” to South Korea’s export-reliant economy if the impact spread globally.

Finance Minister Kim Dong-yeon said at a government meeting, “While the trade conflict between the U.S. and China has had a limited impact so far, we can’t rule out the possibility of a slowdown in the Chinese economy and a contraction in world trade should conflict grow and spread into the global market.”

Broadcom Firms Up Deal to Acquire CA Inc.

 

Broadcom Inc. (AVGO) jointly announced with CA Inc. on Wednesday that an $18.9 billion deal was concluded for the chipmaker to acquire the U.S. business software company. This latest deal can be one of the keys to Broadcom’s expansion. They failed to acquire Qualcomm Inc. (QCOM) a few months back after the U.S. government blocked the deal.

Broadcom’s acquisition of CA Inc. would open the way to expand in business software. The benefit will not be on operational synergies but more from CA’s recurring revenue. Broadcom’s market share in the chip market jumped to 30% this year from 4% in 2013.

Comcast Makes Swift Counter-Offer for Sky

 

After 21st Century Fox Inc. (FOXA) raised its offer to 14.00 pounds per share for pan- European group Sky, Comcast Corp. (CMCSA) wasted no time to make a counter-offer. The world’s biggest entertainment group raised its offer to 14.75 per pound sixteen hours later. They also said it had secured the backing of Sky’s independent directors.

The swift response of CEO Brian Roberts showed how determined Comcast is to buy the group which has presence in 23 million homes across Europe. The intense battle developing between Comcast and Fox pushed the price of Sky’s shares higher to 15.38 pounds (+3.0%) on Thursday in London.

ZTE Nears Lifting of U.S. Ban

 

The U.S. Commerce Department confirmed on Wednesday that it signed an escrow agreement with ZTE Corp. China’s No. 2 telecommunications equipment maker can resume operations once the company deposits $400 million in an escrow account.

ZTE had to cease major operations after the ban was imposed last April. It also created friction between the U.S. and China, which are currently embroiled in a heated trade dispute.

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