U.S. futures fell sharply on Thursday amid continuing trade war rhetoric, while more disappointing data from Europe showed that the impact of the trade conflict is spreading. Business survey sentiment dampened in the European Union, while Japanese electronics Panasonic said it would limit its ties with Huawei after the Chinese tech giant was blacklisted by the U.S. government last week. The U.S. government could also block other Chinese companies from purchasing American goods, which investors fear will continue to escalate the situation. Dow futures fell 227 points or 0.8%, while tech-heavy Nasdaq 100 futures slumped 94 points or 1.3% and S&P 500 futures was down 26 points or 0.9%.
Meanwhile, minutes from the Federal Reserve’s May 1 meeting - which took place before the U.S. extended and raised import tariffs on Chinese goods - indicate that the central bank is comfortable with keeping rates steady for a while.
Boeing is likely to be in focus, as the Federal Aviation Authority meets with 30 other international air regulators to discuss the 737 MAX grounding. The FAA has said that it has not decided on a timeline for when the 737 Max would be able to take flight again. Europe’s air safety agency has already said it won’t let the jet de-ground without independent checks.
In commodities, crude oil fell 1.7% to $60.40 a barrel amid a sharp rise in U.S. stockpiles. Data from the EIA Wednesday showed that U.S crude oil inventories rose last week, hitting their highest levels in nearly two-years, due to weak refinery demand. Commercial U.S crude inventories rose by +4.7M barrels in the week ended May 17, to +476.8M barrels, their highest since July 2017.
In FX, the pound has extended its losses amid a “growing revolt over Brexit” that looks increasingly likely to force PM Theresa May from power sooner rather than later. Europe’s single unit, the EUR is steady as voting gets underway in Day 1 of the European elections. While crude oil comes under pressure from inventory data and commodities from a “grinding trade war.”
Nathan Lambert, Head of Global FX Analytical Department