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U.S - China Trade Conflict Worsen

Zacks Equity Research

This morning, China is reportedly set to put new tariffs on $75 billion worth of U.S. imports as of September 1st. This would be in retaliation for tariffs put on Chinese goods in the U.S. by the Trump administration. The tariffs would range between 5-10% on these as yet unspecified American goods.

Pre-market indexes this Friday slipped notably: from +65 points on the Dow following a dovish interview from St. Louis Fed President James Bullard to -100 points on the Chinese report in roughly two minutes’ time. (The Down is now down 150 points at this time.) Though when we look a little closer, while $75 billion is no one’s idea of a small number, it pales in comparison to the amount of tariffs the U.S. has already placed on Chinese goods.

So the takeaway remains this: China does not import anywhere near as much from the U.S. as the U.S. does from China. No doubt this was part of President Trump’s calculations taking on Chinese/American trade last fall, when he memorably told the country that trade wars are “easy to win.” Yet the market has taken a hit on the assertion that this trade war is not going away anytime soon.

This announcement comes at an interesting time — just a couple hours before Fed Chair Jay Powell’s press conference from the Fed retreat in Jackson Hole, WY. Whereas he may have been trying to find a way to explain the easing of interest rates — 25 basis points last months and possibly another 25 points when the FOMC meets next month — while most fundamentals of the U.S. economy still appear sound, this new front of the trade war may give Powell an easy path toward explaining the Fed’s dovish turn.

Adding to this, the minutes from the last FOMC meeting were released earlier this week. They depicted far from a consensus on cutting rate cuts, making the odds of another cut slightly less inevitable. Regardless, analysts will be paying close attention to Powell’s phrasing as a way of reading the tea leaves ahead of September’s meeting. And depending what is said, his speech (at 10am ET) has real potential to push trading in either direction.

Q2 Earnings Roundup

We’re still not finished with earnings season quite yet. We hear from a few more companies this morning.

Foot Locker FL met estimates of 66 cents per share while coming up 3% short of quarterly sales expectations to $1.77 billion. These numbers are both down from the year-ago’s 75 cents per share on $1.78 billion. The stock, which had climbed 21% year to date, has fallen 11% on the new in the pre-market. 

Zacks Rank #1 (Strong Buy)-rated Red Robin Gourmet Burgers RRGB knocked the cover off earnings estimates this morning, posting $1.03 per share — a 232% positive surprise over the 31 cents expected. This came on $308 million in sales, which topped estimates by 0.3%. After growing its share price 23.4% so far this year, shares are up again in the pre-market.

Hibbett Sports HIBB also met bottom-line estimates of -13 cents per share, on $254.44 million in revenues which was nearly 7% shy of the Zacks consensus. Yet sales are up notably year over year from $211 million, though the loss per share in Q2 last year was only 6 cents.

Also, Zacks Rank #1-rated Buckle Inc. BKE topped estimates by 2 cents to 34 cents per share in its fiscal Q2 report on in-line revenues of $203.8 million for the quarter. Shares, which had tumbled into negative territory year to date, have jumped 7.5% following the earnings release.

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