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Afternoon Debrief for 9th of August 2019

Stock market weighed down by familiar trade concerns

The S&P 500 has retreated from a three-day advance, as trade concerns continue to exert pressure on the broader market. The benchmark index is down 1.0% with noticeable weakness in the semiconductor stocks. 

The Nasdaq Composite is down 1.3%, the Dow Jones Industrial Average is down 0.7%, and the Russell 2000 is down 1.4%. 

President Trump told reporters today that the U.S. will not be doing business with Huawei, which seemed to confirm a Bloomberg report yesterday that the U.S. Commerce Department has been refraining from approving business licenses to work with the Chinese company. The president added that September trade talks could get canceled but are still scheduled for the time being. 

None of these events has been too surprising for investors, but the prospect of U.S.-China relations further deteriorating has contributed to a steady broad-based decline today.

All 11 S&P 500 sectors are down, including eight with losses of at least 1.0%. The information technology sector (-1.5%) is underperforming amid the trade uncertainty, which has also made a noticeable impact on the Philadelphia Semiconductor Index (-2.0%). Many semiconductor companies are heavily exposed to China. 

Uber (UBER 39.72, -3.23) shares have dropped 7.5% after the company reported a wider-than-expected quarterly loss of $5.2 billion. Revenue also missed estimates, but today’s loss has simply given back a bulk of yesterday’s 8% rally. 

In other earnings news, shares of DXC Technologies (DXC 35.74, -15.90, -30.8%) have plunged over 30% after the company cut its FY20 outlook, while shares of Activision Blizzard (ATVI 47.56, -1.78, -3.6%) trade lower as investors remain underwhelmed by its downside Q3 guidance. 

The U.S. Treasury market, which has drawn plenty of attention this week, has been muted. The 2-yr yield is unchanged at 1.61, and the 10-yr yield down two basis points to 1.70%. The U.S. Dollar Index is down 0.2% to 97.43. Interestingly, despite the growth concerns, WTI crude is up 3.7%, or $1.94, to $54.48/bbl. 

Reviewing today’s lone economic report, the Producer Price Index for July:

  • The index for final demand increased 0.2% m/m in July (Briefing.com consensus +0.2%) while the index for final demand, excluding food and energy, decreased 0.1% m/m (Briefing.com consensus +0.2%). The m/m readings left the index for final demand up 1.7% yr/yr, unchanged from June. The index remains at its lowest level since January 2017. Core PPI was up 2.1% yr/yr, down from 2.3% in June.
    • The key takeaway from the report is that inflationary pressure remains muted.
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