Caterpillar results highlight trade tariff fallout
The Dow dumped 500 points in early trade after major US companies Caterpillar and 3M reported downbeat results and guidance. Caterpillar dived 9% on the release of its corporate results. Costs were up on the back of higher steel prices and tariffs from the US – Sino trade war. These figures bring home loud and clear the ramification of the brewing trade war and come at a time when traders are starting to realise that the chances of a US – Sino trade deal being achieved are diminishing. This US – Sino trade spat is here to stay and that is frightening for the outlook of companies. Costs are increasing and fears that tighter trade conditions will slow global growth is making even the most level-headed trader nervous. When Caterpillar, a bellwether for economic activity starts to struggle, the smart money is seeing that as a signal to sell out of riskier assets.
Sentiment has been edgy for a while and there is a feeling that traders have been waiting for some disappointing figures to spark the selloff. With so many US companies reporting this week, risks were high of a big disappointment and now that it has come traders can’t get out of their positions quick enough. Tech stocks and financials also extended the sell off from the previous session, with the Nasdaq now in correction territory.
Brussels rejects Italian budget, yields soar
The European Commission rejected Italy’s draft budget today in an unprecedented move. The decision sent Italian bond yields higher and sparked a selloff on the FTSEMIB. The euro remained resilient versus the dollar implying that investors continue to see this as an Italian problem rather than a eurozone wide issue. Italy now has three weeks to come up with another spending plan which won’t derail the country’s reduction of its enormous debt pile.