Cancellation of Korea summit sends stocks on bumpy ride

Friday, May 25, 2018

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NEW YORK, United States (AP) — US stocks finished mostly lower yesterday as energy companies skidded along with oil prices. The market dropped after President Donald Trump said he cancelled a meeting with North Korean leader Kim Jong Un, but recovered most of those losses.

Crude oil futures and energy companies fell as investors reacted to reports that OPEC nations may start producing more oil. Banks fell as interest rates edged lower, and car companies including Fiat Chrysler and Toyota dropped as the Trump Administration considered tariffs on imported cars and car parts, a move that was criticised by the governments of China, Japan, and the European Union.

The Dow Jones industrial average fell as much as 280 points in the morning, more than one per cent, after Trump said the June meeting with Kim was off. In a letter, Trump said he was cancelling the summit because of “tremendous anger and open hostility” in a recent statement by a North Korean official. Technology companies, which have led the market in recent years, took some of the biggest losses and defence contractors climbed.

The market gradually recovered those losses, and Trump later told reporters that the meeting could still happen in June or later on. Stocks finished only slightly lower than where they were before Trump's initial announcement.

Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, said investors were troubled at first by Trump and Kim's statements about a possible nuclear war, but they've gotten used to it, which means the market doesn't react as much to their statements.

“The first time the market hears these threats there's a large reaction and after that there's less reaction,” he said. “It's just rhetoric right now and there's no actual military conflict, (so) these moves are kind of short-lived.”

The S&P 500 index dropped 5.53 points, or 0.2 per cent, to 2,727.76. The Dow Jones industrial average lost 75.05 points, or 0.3 per cent, to 24,811.76. The Nasdaq composite dipped 1.53 points, less than 0.1 per cent, to 7,424.43. The Russell 2000 index of smaller-company stocks edged up 0.61 points to 1,628.22.

Benchmark US crude lost 1.6 per cent to US$70.71 per barrel in New York. Brent crude, used to price international oils, fell 1.3 per cent to US$78.79 a barrel in London.

Various news outlets reported that the nations of the OPEC cartel might start producing more oil in response to reduced exports from Venezuela and Iran. Greater supplies would send prices lower. Energy companies have slipped in recent days as investors anticipated that possibility. Yesterday, Exxon Mobil lost 2.3 per cent to US$80.27 and Chevron dipped 1.6 per cent to US$126.61.

OPEC and a group of other major oil producers cut production last year in response to a steep drop in oil prices. US crude had fallen from more than US$100 a barrel in mid-2014 to as little as US$26 a barrel in early 2016. On Monday US crude peaked at US$72.24 a barrel, its highest price since late 2014.

The two sides agreed in March after Trump and Kim traded public insults and threats for months.

Still, defence companies fared better than the rest of the market. Raytheon rose 1.3 per cent to US$213.94 and Northrop Grumman gained 1.4 per cent to US$332.81.

Bond prices rose. The yield on the 10-year Treasury note fell to 2.97 per cent from 2.99 per cent, and banks traded lower. Metals prices also increased as the dollar weakened. Gold gained 1.1 per cent to US$1,304.40 an ounce and silver jumped 1.7 per cent to US$16.69 an ounce. Copper picked up 0.8 per cent to US$3.10 a pound.

The Trump Administration plans to conduct an investigation into imported vehicles and automotive parts on national security grounds. A European Union official said the proposal would violate World Trade Organization rules and Japan and China also criticised the proposal. Those same grounds are the justification for proposed tariffs on imported aluminum and steel, and the US will decide by June 1 whether to impose tariffs on steel and aluminum from Europe.

Fiat Chrysler lost 0.9 per cent to US$22.26 and Tata Motors fell 5.8 per cent to US$21.09. Toyota shares fell 1.8 per cent to US$132.44. US rivals Ford rose 1.6 per cent to US$11.62 and General Motors added 1.4 per cent to US$38.39.

“I'm hoping that what they're doing is trying to put a little pressure on the NAFTA negotiations and this will be a way to get Mexico and Canada to agree,” said Zaccarelli, of the Independent Advisor Alliance.

In other energy trading, wholesale gasoline fell 1.2 per cent to US$2.23 a gallon and heating oil lost one per cent to US$2.27 a gallon. Natural gas rose 0.9 per cent to US$2.94 per 1,000 cubic feet.

The dollar fell to 109.28 yen from 110.07 yen. The euro rose to US$1.1727 from US$1.1698.

Germany's DAX lost 0.9 per cent and the FTSE 100 in Britain fell 0.9 per cent as well. The CAC 40 in France shed 0.3 per cent. Japan's Nikkei 225 index fell 1.1 per cent and the Kospi in South Korea slipped 0.2 per cent. In Hong Kong, the Hang Seng gained 0.3 per cent.

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