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Today, the Conference Board released September data on the consumer confidence index. The index fell sharply to 125.1 in September from 134.2 in August. The reading was also lower than the expected 133.5. The assessment of the current economic situation by consumers, as well as expectations for the future, have been moderate, with a decline in the respective sub-indices.
Lynn Franco of the Conference Board pointed out that the escalation of the trade war by the end of August had played an important role in the loss of consumer confidence in September. On September 1, the United States applied a 15% tariff on the $ 110 billion worth of Chinese goods entering the United States.
China's first tranche of US $ 75 billion worth of US goods entering China also came into force. President Trump was considering a new escalation of the trade war. Last week, trade concerns overshadowed the markets, as China's trade delegation abruptly canceled the goodwill visit to US farms affected by the trade war.
Decline in consumer confidence: decline in US stocks
While the S & P 500 (SPY) opened up and rose early in the negotiations, it seemed to abandon those gains because of the loss of consumer confidence. At 11:48 am EST, the S & P 500 index was down 0.2%. The Dow Jones Industrial Average Index (DIA) edged down, while the technology-driven Nasdaq (QQQ) was down 0.7% at the same time, after opening up.
The health of the consumer discretionary sector depends on consumer confidence in the current economy as well as their expectations. Since consumers are more likely to make large purchases, such as cars, when they feel confident, a loss of consumer confidence generally hampers motor vehicle inventories.
At 11:33 am EDT, Tesla (TSLA) was trading down 4.6%. Tesla is trying to escape the tariff war by building a Gigafactory in China. By producing the Model 3 locally, this initiative allows Tesla to avoid the trade war and reduce manufacturing costs.
Apple (AAPL), which also relies on consumer confidence, has reduced the bulk of its gains on the consumer confidence database. AAPL was trading up 0.2% at 11:44 am EDT. Apple manufactures most of its products in China using subcontractors such as Foxconn. In particular, the rates that will come into effect on December 15 should weigh on Apple's profitability. Apple is a declared opponent of the trade war.
Amazon (AMZN) and Alibaba (BABA) have traded deep in the red today. At 12:24 pm EDT, Amazon was down 1.65% while Alibaba was down 2.3%. Amazon's Echo devices are affected by the trade war, Amazon plans to transfer its production to Vietnam. The stock of Alibaba has lost 1.4% since the beginning of September due to the intensification of the trade war.
Will consumer confidence force the Fed to cut rates faster?
Until now, the Fed has maintained a measured approach to monetary policy. The Fed cut interest rates by 0.25% at its last meeting, without specifying the path of interest rates. Declining consumer confidence may force the Fed to be more flexible in supporting expansion. The Fed has already indicated that monetary policy decisions will be based on data.
President Trump, who calls for drastic cuts in interest rates, could try to put the ball in the Fed's court. In the past, Trump has criticized the Fed for keeping rates too high and the dollar too strong, bothering US exporters.
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