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On 30 April 2019 - Asia dips on manufacturing; European GDP improves; US stocks mixed

Anne D Picker

Anne D Picker - Econoday

Samsung pulls down Kospi, Alphabet pulls down Nasdaq.

US markets

The Dow and the S&P edged 0.1 percent higher but the Nasdaq fell 0.8 percent on a steep decline for Google-parent Alphabet which posted its slowest sales growth in three years. Oil was higher as well as many energy shares on talk that Saudi Arabia may not be in a rush to replace Iranian crude as US waivers expire. Street violence in Venezuela had limited effect on the markets.

The Trump administration and Congressional leaders agreed to spend $2 trillion on public infrastructure and will meet later to discuss how to fund the plan. Citing low inflation, President Trump urged the Federal Reserve to cut interest rates as well as return to quantitative easing in moves that he said would make the economy "go up like a rocket". The Fed will issue a policy announcement tomorrow and no changes are expected.

The employment cost index rose 0.7 percent in the first quarter with the year-on-year rate at 2.8 percent which, for inflation hawks, is slightly elevated. Yet cost pressures aren't showing acceleration as the fourth quarter year-on-year rate of 2.9 percent still stands as the highest of the 10-year economic expansion. Fed officials, especially Chairman Jerome Powell, have been playing down the risk that rising wages represent a threat to overall inflation pressures.

Tuesday's other data included the consumer confidence index which beat expectations, up 2 points in April to 129.2. Details include a 5 tenths decrease to 13.3 percent for those who say are jobs-hard-to-get which is a positive indication for Friday's employment report. Pending home sales were also released, up a surprising 3.8 percent in March which points to extending improvement for final sales of existing homes in April. This year's Spring housing season in the US is expected to benefit from this year's sharp drop in mortgage rates.

These data reflect observations at 4:00 PM US ET. Dated Brent spot crude was up US$0.80 to $72.80 while gold was US$3.90 higher at $1,283.70. The US dollar weakened against the euro, the Canadian dollar, the yen, and especially the pound; it was little changed against the yuan and the Australian dollar. The yield on the US Treasury 30-year bond fell 3 basis points to 2.94 percent while the yield on the 10-year note fell 2 basis points to 2.51 percent.

European markets

European shares ended mostly higher led by Spain's Ibex which rose 0.6 percent after edging higher Monday following Prime Minister Pedro Sanchez's socialist victory over the weekend. Italy posted a favorable GDP report helping the MIB gain 0.4 percent. The DAX and the CAC both edged 0.1 percent higher.

The pound got a boost on reports of a favorable tone in Tory and Labour talks to reach a new agreement on Brexit, one that is targeted for next week. Strength for the pound did not make for strength in the FTSE, which fell 0.3 percent.

Danske Bank of Denmark, the target of an EU money laundering probe, fell very sharply after posting quarterly results and cutting its full year outlook. Standard Chartered rose sharply after the UK banking giant announced a share buyback plan. Austrian sensor maker AMS surged after beating quarterly estimates and issuing an upbeat forecast.

Eurozone GDP expanded a preliminary 0.4 percent in the first quarter vs the previous period. This was up from 0.2 percent posted at the end of last year, a little stronger than expected and the best performance since the second quarter of 2018. Yet it was still only enough to leave annual growth at 1.2 percent. In the absence of the GDP expenditure components, it's difficult to assess the implications of the report for ECB policy. The central bank will certainly be relieved that first quarter growth was surprisingly firm but if headline strength masks still sluggish domestic demand, gradually building pressure for additional monetary accommodation will not likely ease. German GDP wasn't released though the French economy rose 0.3 percent and Spain a solid 0.7 percent.

And Italy moved out of recession as total output rose a stronger than expected 0.2 percent versus the third quarter. Though subdued, this was Italy's best performance since fourth quarter 2017. Following an unrevised 0.1 percent quarterly contraction at the end of 2018, this put annual growth at 0.1 percent, just marginally higher than last time but at least back in positive territory.

Asia Pacific Markets

Downbeat Chinese data and disappointing earnings dented Asian equities Tuesday. Chinese purchasing managers' reports missed expectations and pointed to slower growth in the second quarter despite pro-growth government measures. Yet Chinese markets managed modest gains as traders looked past current weakness and anticipated more government stimulus.

The Shanghai composite recovered from initial losses to end up 0.5 percent on talk the PBOC is prepared to boost market liquidity. Chinese and Japanese markets are on holiday the rest of the week. 

China's CFLP Manufacturing PMI index fell to 50.1 in April from 50.5 in March, below the consensus forecast of 50.5. The Caixin manufacturing PMI was also released, slipping to 50.2 in April from 50.8 in March, weaker than the 51 figure markets expected and pointing to a slower expansion in the sector. The Caixin output sub index dropped and the employment sub index returned to negative territory after hitting a 74-month high in March.

Korean markets were pulled down by a surprising drop in profits of Samsung Electronics, the KOSPI industrial bellwether. Samsung fell 0.7 percent after posting a larger-than-expected 60 percent drop in first-quarter operating profits, sending the KOSPI down 0.6 percent. Samsung blamed declining chip prices and dropping demand for smartphones, servers and display panels. Samsung's losses spurred declines in other Korean chipmakers and industrials. 

Hong Kong shares also weakened, led by losses in banking and energy sectors, while Singapore stocks edged down as financials relinquished the previous day's gains. Hong Kong's Hang Seng index fell 0.6 percent with the Singapore Straits down 0.2 percent, paced by losses in financials DBS Group and United Overseas Bank, both of which were big gainers in the previous session. Australian shares were hurt by the soft Chinese data that are raising worries over demand for Australian exports. Australia's All Ordinaries Index lost 0.5 percent, led by declines in mining and energy shares.

Traders awaited news from the Federal Reserve's Federal Open Market Committee meeting due Wednesday, and watched for signals from US-China trade talks resuming this week in Beijing.

Looking forward

Labour market conditions in New Zealand and Japan's PMI manufacturing will be posted shortly. The CIPS/PMI manufacturing index and nationwide house price index will be posted in the UK; in the US, ISM manufacturing will be posted and the FOMC will make a policy announcement followed by Fed Chair Powell’s press conference. 

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Data Source - Haver Analytics

Note: all releases are listed in local time.

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