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Election Optimism Erodes as Investors Shift Focus to Trade Issues

According to Axios, President Trump thinks threatening more tariffs on overseas-made cars is his best negotiating tactic on trade. The Axios report said Trump has told aides he was able to get a better trade deal with Canada because he threatened Canadian Prime Minister Justin Trudeau with levies on cars made in Canada.

The major equity markets are down in Asia early Tuesday in wake of the steep sell-off in the U.S. stock markets on Monday. Like the rout in the U.S., weakness in Apple is guiding the markets lower. No major financial region was spared either with losses stretching from Japan to Australia.

At 0452 GMT, Japan’s NIKKEI 225 Index is trading 21765.32, down 504.56 or -2.27%.Hong Kong’s Hang Send Index is trading 25606.49, down 26.69 or -0.10%. After starting the day in negative territory, China’s Shanghai Index is at 2633.46, up 2.94 or +0.11%. The South Korean Kospi Index is at 2060.19, down 20.25 or -0.97% and Australia’s S&P/ASX 200 is trading 5839.20, down 102.10 or -1.72.

It seems the optimism generated by the results of the mid-term elections has already worn off with investors shifting their concerns back to the lingering trade issues between the United States and China.

U.S. Markets Tumbles after Big Decline in Apple Shares.

The three big U.S. stock market indexes plunged on Monday led by a 602 point drop in the bull chip Dow Jones Industrial Average. This brought the Dow’s two-session drop to 804 points. The tech-driven NASDAQ Composite declined 2.8 percent, while falling back into correction territory for the first time since mid-October. The benchmark S&P 500 Index fell 2 percent, dragged down by a poor performance in the financials sectors.

The weakness was tied to a sell-off in shares of Apple, a spike higher in the U.S. Dollar and lingering worries about global trade.

Apple shares plunged by 5 percent after Lumentum Holdings, which makes technology for the iPhone’s face-recognition function, cut its outlook for fiscal second quarter 2019. The drop in Apple spread to other bellwether technology stocks including Alphabet and Amazon which fell 2.7 percent and 4.3 percent respectively. In a little more than two months, Amazon has dropped more than 20 percent from its 52-week high.

The S&P 500 technology sector also found itself in correction territory down more than 10-percent from its 52-week high. Furthermore, within the sector, nearly 70 percent of the stocks were at least in a correction.

Trade Concerns are Back

According to Axios, President Trump thinks threatening more tariffs on overseas-made cars is his best negotiating tactic on trade. The Axios report said Trump has told aides he was able to get a better trade deal with Canada because he threatened Canadian Prime Minister Justin Trudeau with levies on cars made in Canada.

It’s Not Too Early to Start Thinking about the G-20 Summit

President Trump and Chinese President Xi Jinping are set to meet at the G-20 meeting in Argentina November 30 to December 1. This meeting is very important because the challenge to address the US-China conflict remains high.

According to Haibin Zhu of J.P. Morgan, there is a 55 percent chance the two leaders fail to come to an agreement at the summit.

“The US-China conflict extends beyond trade to areas such as technology, intellectual property rights, market access, industry policy, and ultimately centers on the competition between the two economic superpowers.”

“It is not clear whether China is willing to make visible changes beyond trade (e.g. market access, IP protection, technology), and whether the US will prioritize its demand list,” Zhu added.

This article was originally posted on FX Empire

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