Stocks reversed early losses Wednesday amid reports that the Trump administration is planning to delay auto tariffs by up to six months.
On Wednesday, several news outlets reported that the Trump administration is planning to pause on implementing auto tariffs ahead of a May 18 deadline. The Commerce Department had compiled a report earlier this year that concluded Trump could justify imposing tariffs of as high as 25% on cars by citing a national security threat.
The news sent stocks into the green, after the Dow was off by as many as 190 points earlier in the session.
U.S. equity markets initially opened lower as new economic data on April retail sales and industrial production came in lower-than-expected.
Retail sales in the U.S. fell 0.2% in April, when consensus economists had anticipated a 0.2% gain. In the control group, which excludes volatile auto and gas sales, retail sales also fell 0.2% month-over-month. But for the month prior, this control group was upwardly revised to see a 1.1% gain, putting the three-month over three-month annualized growth rate at 3.2%, a five-month high, according to Capital Economics.
Analysts from JP Morgan noted that lower refunds during this year’s tax season may have contributed to weakness in household spending in April.
JPM on retail sales miss: "One possible explanation for the softening in consumer outlays last month is tax season, which looks like it may have been worse than households anticipated; this would also be consistent with the 5.9% tumble in unit auto sales in April."
— Sam Ro (@SamRo) May 15, 2019
“Whatever caused last month’s disappointment, the general backdrop for consumers still looks pretty favorable (jobs, sentiment, etc.) so we’d expect sequential better numbers over the remainder of the second quarter,” JP Morgan analyst Michael Feroli wrote in a note Wednesday.
Meanwhile, industrial production also unexpectedly declined in April, dropping 0.5% versus consensus expectations for no change. Manufacturing output, which accounts for about three-quarters of total production, fell 0.5%. In the first three months of the year, manufacturing output fell by an average of 0.4% per month.
“Subdued global growth is clearly still taking its toll on U.S. producers, while further appreciation of the dollar over the past few months is an additional headwind,” Andrew Hunter, senior U.S. economist for Capital Economics, wrote in a note.
The manufacturing sector accounts for just a small portion of economic activity in the U.S., but is closely watched as a proxy for changes in global demand.
China likewise posted weak data on retail sales and industrial output for April, stoking fears of a slowdown in the world’s second largest economy amid an escalating trade war with the U.S.
Retail sales rose 7.2% year-over-year in China, marking the weakest pace of growth since 2003 and underperforming against estimates for 8.6% growth.
China’s industrial output rose 5.4% year-over-year in April, also missing expectations. The disappointing new data from the country’s key manufacturing sector reversed the apparent rebound seen in March, when industrial output growth hit a four-and-a-half year high of 8.5%.
These results come after the Chinese government earlier this year unleashed a stimulus program to cut taxes and fees for companies in effort to prop up the economy.
Evidence of weak economic growth in China has been viewed by many analysts as a signal that the U.S. may have more leverage in negotiating a trade deal, as the domestic economy has shown continued signs of resilience based on recent GDP and labor market data.
Meanwhile, Trump is anticipated to sign an executive order that would ban U.S. companies from using telecommunication equipment produced by firms deemed to pose a national security risk – a move which would create a block on doing business with Chinese tech giant Huawei, according to a Reuters report.
Such action would likely add to tensions between the U.S. and China, given Huawei’s centricity to China’s goal of scaling the ranks to become a leader in global technology. The U.S. has alleged that Huawei’s equipment could be used by the Chinese state to spy, but the company has repeatedly denied these claims.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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