uploads/2019/08/Political-Unrest.png

Political Unrest and Trade War Impact Airline Stocks

By

Updated

US airline stocks fell on Monday. Overall, the airline industry appears to be bearing the brunt of political unrest and trade war worries.

Article continues below advertisement

Political unrest impacts airlines

Most US airline shares closed in the red on Monday. Notably, American Airlines (AAL) stock fell the most with a decline of nearly 4%. United Airlines (UAL), Delta Airlines (DAL), and Southwest Airlines (LUV) fell 2.6%, 1.5%, and 0.8%, respectively. The iShares Transportation Average ETF (IYT) fell 1.7% on Monday. IYT invests in Dow Jones transportation stocks. IYT has allocated 20% of its funds to the airline industry.

Protest in Hong Kong

Intensifying anti-government protests in Hong Kong impacted the airline industry. One of the world’s busiest transportation hubs faced an operation halt on Monday. Thousands of demonstrators gathered across the Hong Kong airport. As a result, airport authorities had to cancel nearly 150 flights on Monday afternoon.

Hong Kong residents protested China’s extradition bill. The legislation will allow Chinese authorities to transfer Hong Kong cases to mainland China. The government controls the courts in China. Meanwhile, the Chinese government suspended the bill without withdrawing it fully.

The anti-government demonstration intensified over the last few weeks. China used police force against the protesters. The country deployed paramilitary troops across its southern border city, according to a report by The Washington Post on Monday.

Article continues below advertisement

Rising political tension in Hong Kong might deter the Chinese government’s mega economic growth plans. Notably, the Hong Kong airport is the world’s busiest cargo airport. As a result, political unrest in the region would impact every business sector. Particularly, the unrest would impact the logistics industry. As a result, FedEx (FDX) and UPS (UPS) shares fell 2% and 0.7%, respectively, on Monday. FedEx and UPS are the two largest air freight and logistics companies in the world.

Intensifying US-China trade war

Rising trade tensions between the US and China played a crucial role in the stock market plunge. Recently, the trade war between the US and China intensified. President Trump threatened to impose new tariffs on Chinese goods. The Trump administration decided to levy 10% duties on $300 billion worth of Chinese goods starting on September 1.

To counter the higher tariffs, China allowed its currency to weaken. The weaker yuan will help Chinese exporters offer better prices than foreign competitors. The People’s Bank of China set the yuan rates at 7.0211 per dollar on Monday. China’s central bank set the yuan exchange rate higher than 7 per dollar for the third consecutive day.

The intensifying trade war might trigger a global recession.

Political unrest in Argentina

Argentina’s primary presidential election results added to the recession concerns. On Sunday, President Mauricio Macri lost the primary presidential battle against populist Peronist party candidate Alberto Fernandez.

President Macri is a pro-business leader. Therefore, his presidential loss caused a massive fall in Argentina’s currency and the stock market. Argentina’s primary stock market, the SP MERVAL, fell 38% on Monday. The peso fell approximately 25% to 59 per dollar.

Advertisement

More From Market Realist