Market Outlook – June 7, 2018

Main U.S. Benchmarks Finish Strong

 

U.S. equities extend its winning streak to a fourth straight session at the close of trading session on Wednesday. The Dow Jones Industrial Average posted its biggest one-day point and percentage gain since April 10. The blue-chip index advanced 346.61 points (+1.4%) to close at 25,146.39, which is also its highest level since March 12.

The broader S&P 500 Index likewise finished at its highest since March 12. The index added 23.55 points (+0.9%). The Nasdaq Composite Index recorded its third consecutive all-time closing high as it rose 51.38 points (+0.7%) to 7,689.24. The mid-week was the fourth straight daily advance for both the S&P and the Nasdaq while it was the third in four days the Dow Jones has risen.

With the bond yields rising, the financial stocks surged and were the top-performing sector of the day. The rally was led by Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM) where they climbed 1.7% and 2.3% respectively.

Showdown in G7 Summit Looms

 

The G7 leaders will be facing United States President Donald Trump for the first time since U.S. tariffs on steel and aluminum imports from Canada, Mexico and the European Union were imposed last week.

The summit will take place in Charlevoix, Quebec on Friday and Saturday this week. According to the White House, Trump is maintaining his stance and will not back down from the tough line he has taken on trade. During Wednesday’s press briefing, Trump’s top economic adviser Larry Kudlow said, “There are disagreements. He’s sticking to his guns. And he’s going to talk to them.”

EU Retaliates with Tariffs on U.S. Goods

 

The European Union is responding to the Trump administration’s decision to impose tariffs on steel and aluminum imports from some of its closest allies. The bloc confirmed that effective early July, they will slap tariffs on nearly €2.8 billion ($3.3 billion) worth of American goods.

The targeted products from the U.S. would include bourbon, denim, orange juice, motorcycles, peanut butter, motor boats and cigarettes.

European Commission vice-president Maroš Šefčovič told reporters in Brussels that the EU lamented the White House’s “illegal” act. He said: “The new duties start applying in July. It is a measured and proportionate response to the unilateral and illegal decision taken by the United States.”

U.S. Renewable Energy Firms Hold Off Projects

 

Because of the tariffs imposed on imported solar panels, U.S. renewable energy companies to have to either cancel or freeze investments of more than $2.5 billion in large installation projects. Developers said thousands of jobs are also affected.

The amount of the stalled projects is more than double the $1 billion in new spending plans announced by firms building or expanding U.S. solar panel factories to take advantage of the tax on imports.

However, the impact of the tariff’s on the solar industry highlights how protectionist trade measures almost hurt one or more domestic industries for every one they shield from foreign competition.

As an example, Trump’s metals tariffs have hurt manufacturers of U.S. farm equipment made with steel. U.S. manufacturers and farmers are now buying tractors, grain bins, and other equipment at higher prices.

Tesla on Track to Meet Production Target

 

The shares of Tesla Inc. (TSLA) rose 9.7% on Wednesday after CEO Elon Musk told shareholders that they are “quite likely” to meet its production target of 5,000 Model 3 cars in a single week by the end of June.

Musk stressed that the company is already capable of making 500 Model 3s daily or 3,500 a week. Tesla is pushing to meet the critical production level (5,000-a-week rate) after experiencing two delays.

Tesla needs to generate to sustain operations and that is anchored on meeting the production goal of 5,000 Model 3s a week by the end of June. There will no need to raise more capital too. The carmaker has struggled and faced increasing financial pressure when they failed to ramp production of the Model 3 last July.

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