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Stock Futures Dive As China Responds To Expanded Trade War Threat

Stock futures were down hard early Wednesday, following the Trump administration’s release late Tuesday of a list that would add tariffs to another $200 billion in products imported from China. Chinese authorities immediately responded, pledging to fight the measures.

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China’s markets opened in freefall, but narrowed losses before their close. On U.S. markets, China-based stocks that had taken harsh hits in Tuesday’s regular session Tuesday fell further early Wednesday. Alibaba Group (BABA) and Baidu (BIDU) fell nearly 2% apiece. On the Dow, China-sensitive Boeing (BA) , Caterpillar (CAT)  and United Technologies (UTX) each dropped more than 1% in premarket trade.  Companies reporting earnings were also among those having trouble, with chemicals brand WD-40 (WDFC) and aircraft components maker AAR (AIR) each down hard after their reports.

Oil prices continued to trade near recent highs with key data due out Wednesday. Oil producers PDC Energy (PDCE) and Newfield Exploration (NFX) were near buy points. EOG Resources (EOG) remained in buy range but also is forming a new entry.

Nasdaq 100 futures crumbled 0.8%, with Micron Technologies (MU), Baidu and JD.com (JD) among the hardest hit. Future for the Dow industrials and the S&P 500 fell 0.7% below fair value.  (For updates on this story and other market coverage, visit the Stock Market Today.)

Trump Trade War Gets A $200 Billion Boost

Markets added a fourth straight gain Tuesday amid a reprieve from trade-war fears as global markets awaited the impact of tariffs launched Friday between the U.S. and China. But release of the expanded sanctions list and China’s response late Tuesday rattled markets in the U.S. and China.

Before the new threat from the White House, trade war tariffs of 25% were placed on $34 billion in products on both sides, with the U.S. saying tariffs targeting an additional $16 billion could potentially take effect later this month. Tuesday’s move aims to add 10% tariffs to another $200 billion in annual products, listed in a 205-page document released late Tuesday.  U.S. Trade Representative Robert Lighthizer’s office plans four days of public hearings on the expanded sanctions, beginning Aug. 20.

China pledged to lodge a complaint with the World Trade Organization, and urged other countries to join it in protecting free trade. China is in late stages of an agreement with 16 countries including India and Japan o create the world’s largest trading bloc. China also announced late Tuesday it would channel revenue from its trade tariffs on U.S. goods to Chinese companies struggling to deal with the effects of U.S. tariffs against China-made products.

Stock futures slipped and bonds crept higher, sending the 10-year U.S. treasury yield down 1 basis point to 2.85%. President Trump has made it clear that the U.S. has more than $500 billion in potential tariff targets it is willing to put into play against China. Regulators also encouraged Chinese companies to shift from U.S. suppliers to those from other countries.

The Shanghai Composite closed down 1.8%, while Hong Kong’s Hang Seng index dropped 1.3%. The mood infected trade in Japan, where Tokyo’s Nikkei 225 fell 1.2%. Markets in Europe shifted sharply lower, with Frankfurt’s DAX down 1.3% and London’s FTSE 100 falling 1.2% in morning trade.

Oil Prices Dive Ahead Of EIA, OPEC Data Due

Oil prices skidded lower early Wednesday, despite pressure from an oil workers strike in Norway and other global supply factors. Also, the American Petroleum Institute reported a larger-than-expected draw on U.S. oil and gasoline inventories. API data showed a 6.8-million-barrel draw in the week ended July 7, vs. a consensus view for a 4.5-million-barrel decline. Gasoline stockpiles fell by 1.6 million barrels, the API said. Views projected a 750,000-barrel draw. U.S. benchmark West Texas intermediate crude oil slipped 0.7% to below $74 a barrel. Europe’s Brent crude tumbled 2.1% to below $78.

The Energy Information Administration releases official weekly inventories data Wednesday at 10:30 a.m. ET. Monthly oil supply reports are due on Wednesday from the Organization of Petroleum Exporting Countries and on Thursday from the International Energy Agency. These will be of particular interest as investors attempt to assess the impact of supply shortages from Canada, Libya and Gabon, as well as from the strike in Norway.

PDC Energy ended Tuesday just below a 66.30 buy point. Newfield Exploration hung 1% below a 31.08 buy point. EOG Resources was in a buy range above a buy point at 126.42 but is also forming a new base. Marathon Oil (MRO) slipped back below its buy point after a brief breakout on Tuesday.

Micron Slides; AAR, WD-40 Take Post-Earnings Dives

Memory chip maker Micron Technology tumbled 2% in premarket trade, the worst late decline among IBD 50 and Nasdaq 100 stocks, but was inactive Wednesday morning. A July 3 court decision in China halted all of Micron’s sales in the country, based on alleged patent infringements. Micron shares are attempting to retake support at their 10-week moving average, and climb the right side of a late-stage base pattern.

Defense contractor AAR dived nearly 6% late Tuesday, but was inactive Wednesday morning. Its earnings topped expectations but revenue fell short of targets in its fiscal Q4 report. The stock has been trading tightly near highs and above the 10-week moving average since breaking out from a flat base in April.

Lubricant and hand cleaner brand WD-40 narrowed its premarket loss to 2%. The San Diego, Calif.-based outfit scored a sound beat for its fiscal third-quarter results, but gross margins shrunk, and the company warned that raw-materials costs were rising. WD-40 shares were trading at fresh highs at Tuesday’s close, up almost 18% since clearing a flat base in February.

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