Stocks vulnerable even without Trump's trade war

By Eamon Quinn

The Ftse-100 and other European stock market indices edged higher but the deep concerns over the potential for the US President Donald Trump to escalate the trade spats with China and Europe will likely weigh for some time, analysts say.

Capital Economics in London warned that consumer stocks and information technology stocks which were once seen immune to potential trade wars are now increasingly vulnerable to a slowdown in the US economy. Its economists believe that the so-called Faang stocks — Facebook, Apple, Amazon, Apple, Netflix, and Google — are also at risk.

“We still do not anticipate a full-blown trade war, and we do not expect the protectionist measures implemented or proposed thus far to kill the current economic expansion on their own,” said Capital Economics.

However, as equity markets usually lead the economy rather than the other way around, the current escalation of trade tensions is adding to the pressure on global equity markets. What’s more, cyclical sectors remain particularly vulnerable in this environment, with or without exposure to China,” it said.

After sharp falls posted on Monday, European stocks posted gains and General Electric (GE) and technology stocks helped Wall Street recoup some losses from a day earlier on escalating global trade tensions.

GE jumped about 7% in heavy trading, on track for its biggest one-day gain in over three years, after the company said it will spin off its healthcare business and divest its stake in oil services company Baker Hughes, leaving it focused on jet engines, power plants, and renewable energy.

The S&P technology index rose, while shares of Netflix jumped 3%.

“There is a little bit of rebalancing,” said Matt Lloyd, chief investment strategist at Advisor’s Asset Management in Colorado.

The benchmark S&P 500 index posted its worst day in more than two months on Monday, dropping 1.37% on reports of proposed restrictions on foreign investment in US technology companies.

After initial reports that only Chinese investments would be curbed, US treasury secretary Steven Mnuchin said on Twitter that restrictions would apply “to all countries that are trying to steal our technology”. White House trade and manufacturing adviser Peter Navarro later said only China would be targeted.

Harley-Davidson shares fell after President Trump threatened the company with higher taxes, a day after the company said it would move production of motorcycles shipped to the EU to its international facilities.

Additional reporting Reuters

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