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Dow futures pointing red, what does it mean for the ASX 200 tomorrow?

US China Trade War

The ASX 200 posted its best day in two and a half months last Friday, but the local sharemarket failed to maintain such momentum today, falling by almost 30 points or 0.50%. This was a market reaction to President Donald Trump’s decision to go ahead with new tariffs over the weekend.

The new 15% Trump tariff affects about $110 billion worth of imports from China. This includes consumer goods such as Apple products, electronics, footwear and apparel. China retaliated with its own tariffs on many agricultural goods and crude oil. There are further tariffs on the way, with the US signalling it will also raise existing duties on $250 billion worth of Chinese products to 30% from 25% on 1 October. 

While positive US–China trade war comments boosted the markets last week, it appears as though the trajectory of further protectionism and escalating trade war retaliation will continue for the near term.

What does this mean for ASX shares?

The ASX may face continued pressure over the course of the week if the US–China trade comments continue to escalate overnight. As the two countries go back and forth with new and increasing tariffs, it may spur further recession fears, especially as the yield curve is now inverted.

Many ASX companies have commented on the impact of a trade war. For example, BHP Group Ltd (ASX: BHP) stated in its full-year report that “any further escalation in trade protection or less of business confidence is a downside risk for consensus views of the world economy, commodity demand and energy and metals prices in the 2020 financial year.”

CSL Ltd (ASX: CSL) also highlighted trade concerns in its full-year report, stating that “legislation or regulations that affect … distribution, pricing, reimbursement, access” may have a significant impact on its guidance.

While many ASX shares have little to no exposure to China, it will be difficult to escape the ebb and flow of the markets. Dow futures are currently pointing to a 100 point fall, or approximately -0.4%.

Alternatively, the market could see the gold spot price increase overnight on the back of renewed interest for the safe-haven commodity. This could see the likes of the Newcrest Mining Ltd (ASX: NCM), Northern Star Resources Ltd (ASX: NST) and Evolution Mining Ltd (ASX: EVN) share prices push higher.

Investors should note that the NYSE and Nasdaq are closed for Labor Day, and will reopen on Wednesday after two full days of Asian and European trading.

Foolish takeaway

September is generally a weaker month as far as equity markets are concerned. Investors should pay close attention to how the trade war pays out and particular attention to the US employment report that comes out on the first Friday of every month. This will indicate how the US economy is performing under the strain of the trade war and if further monetary easing is required.

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As of 2.11.2020

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