Skip Header

On 31 July 2019 - US down on Fed disappointment, Europe up on earnings, Asia off

Anne D Picker

Anne D Picker - Econoday

Fed leaves market uncertain on whether more rate cuts are coming.

US markets

US stocks dropped Wednesday after a divided Federal Reserve policy committee delivered an as-expected 25 basis point rate cut, but policy statements were more hawkish than the market expected. The Dow industrials fell 1.2 percent, the S&P 500 fell 1.1 percent, and the NASDAQ declined 1.2 percent. The US Treasury yield curve flattened as the short end sold off on disappointment over the Fed stance, while long end Treasuries rallied.

Fed Chair Jay Powell repeatedly cited the 1995 and 1998 insurance rate cuts in discussing the Fed’s decision, which suggested he regards the latest action as an insurance rate cut, and not the start of an easing cycle. He said the Fed would remain data dependent in assessing the outlook. All this implied the Fed is not starting a series of rate cuts, but isn’t necessarily stopping with 25 basis points.

An accommodative step was the Fed ending its balance sheet drawdown. The Fed statement kept an upbeat economic assessment but noted inflation remains muted and spoke of global factors, a reference to the trade war, and slowing economies overseas, adding to uncertainty. Fed hawks Eric Rosengren and Esther George voted against the rate cut.

Traders faced an array of news crosscurrents, including generally positive corporate earnings Wednesday. On the geopolitical front, US-China trade talks ended with no visible progress, North Korea fired more test missiles, and turmoil continued in Hong Kong. US data were mixed, with US ADP jobs data on the strong side, and the Chicago PMI data weakening further.

Among stocks in the S&P 500, consumer staples and materials underperformed, while energy, tech, finance, and health care outperformed. Among shares in focus, Apple rose 2.2 percent on an earnings beat, and positive news in its wearables business. Biotech Amgen rose 5.8 percent on earnings, including good news about its KRAS cancer drug. Humana, the health insurer, rose 4.5 percent on an earnings and revenues beat.

Notable losers included Molson Coors Brewing, down 5 percent on weak earnings and revenues, and chipmaker Advanced Micro Devices, off 10.1 percent on misses for earnings and revenue and warning on the impact of the US-China trade war. Tobacco company Altria was off 2.2 percent on a downgrade from Morgan Stanley. General Electric seesawed to end down 0.6 percent after mixed quarterly results.

In US economic news, the employment cost index rose 0.6 percent in the second quarter versus expectations for 0.7 percent. The year-on-year rate likewise moderated, to 2.7 percent versus expectations for 2.8 percent. On the jobs front, ADP estimated that private payroll growth of 156,000 in Friday's employment report for July. Econoday's consensus for this estimate was 155,000 and forecasters see private payrolls in Friday's employment report coming in at 160,000 versus 191,000 in June. Meanwhile, the Chicago PMI fell 5.3 points in July to 44.4, its lowest reading in 4-1/2 years. New orders sank deeper into contraction with employment falling into contraction for the first time in nearly two years and to its deepest level of contraction in nearly 10 years.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude rose 45 cents to US$65.17 while gold fell US$16.70 to US$1,425.10. The US dollar rallied against most major currencies. The yield on the US Treasury 30-year bond yield dropped 5 basis points to 2.53 percent while the yield on the 10-year note fell 5 basis points to 2.01 percent. At the short end, US 2-year note yields rose 3 basis points to 1.89 percent.

European markets

Most European equities markets edged up in quiet trading Wednesday, with corporate earnings in focus, as markets waited for policy news from the Federal Reserve. The Europe-wide STOXX 600 rose 0.2 percent, the German DAX rose 0.3 percent, the French CAC rose 0.1 percent, and the UK FTSE 100 fell 0.8 percent.

Outperforming in the Stoxx Europe 600 were retail, construction and materials, travel, and financial services. Underperformers included real estate, basic resources, and chemicals.

Banks were in focus on a busy earnings day. Credit Suisse rose 2.4 percent and BNP Paribas rose 1.6 percent on favorable earnings. Banks trading lower on disappointing earnings included Banco Bilbao Vizcaya (down 1.2 percent), Erste Group (down 2.3 percent) and Lloyds Banking (down 3.2 percent).

Among the winners: Next PLC, a UK clothing firm, up 8 percent on an earnings beat and strong guidance. Rentokil, a UK services conglomerate, rose 5.5 percent after blowout quarterly results. Centrica, the battered UK energy company, gained 3.4 percent after news its CEO would leave.

In economic news, the flash report put quarterly Eurozone growth at just 0.2 percent in April-June. This was in line with market expectations but only half the unrevised rate achieved in the previous period. Eurozone inflation provisionally decelerated in July. From a final 1.3 percent in June, the annual rate dipped to 1.1 percent, in line with market expectations and matching its lowest outturn since November 2016.

Asia Pacific Markets

Major Asia markets dropped Wednesday after Chinese data showed further weakness and investors waited for news on US-China trade talks and the Federal Reserve policy outlook. Hong Kong’s Hang Seng index was among the weakest performers in the region, closing down 1.3 percent, with the session ending early after authorities issued a tropical cyclone warning. Japanese markets also posted sharp losses, with the Nikkei and the Topix indices down 0.9 percent and 0.7 percent respectively, while the Shanghai Composite index also fell 0.7 percent. Australia’s All Ordinaries index dropped 0.5 percent on the day after data showed headline inflation remained below officials’ target range.

China's CFLP Manufacturing PMI index rose from 49.4 in June to 49.7 in July, just above the consensus forecast of 49.6 but indicating contraction in the sector for the third consecutive month. The CFLP Non-Manufacturing PMI index fell from 54.2 in June to 53.7 in July, its lowest level since last November. Other data published Tuesday showed Hong Kong’s economy contracted for the third time in the last five quarters in the three months to June, with GDP falling by a seasonally adjusted 0.3 percent after advancing 1.2 percent in the three months to March.

Australia's headline consumer price index rose by 1.6 percent on the year in the three months to June, up from 1.3 percent in the three months to March and closer to the Reserve Bank of Australia's target range of 2.0 to 3.0 percent. Inflation has now been below this range for four consecutive quarters. Measures of core inflation, which exclude the impact of volatile price changes, were steady in the three months to June. Although officials anticipated this increase in headline inflation, RBA Governor Philip Lowe last week said that "on current projections, it will be some time before inflation is comfortably back within the 2 - 3 percent target range." Based on this assessment, officials concluded at each of their last two meetings that policy rates should be cut in order to "achieve more assured progress towards the inflation target". Officials' next policy meeting will take place next week.

Looking forward

On Thursday in Asia, PMI manufacturing index reports are due from China, India, and Japan. From Europe, the big event will be the Bank of England's monetary policy announcement and inflation report. In European data, PMI manufacturing reports are due from the Eurozone, France, Germany, and the UK. From the US, data releases include: ISM manufacturing index, jobless claims, construction spending, EIA natural gas, and PMI manufacturing index.

Global Stock Markets



31 Jul 2019

Daily Change

% Change Daily

North America





United States











S&P 500





S&P/TSX Comp










FTSE 100




















Ibex 35





OMX Stockholm 30















All Ordinaries





Nikkei 225









Hong Kong

Hang Seng




S. Korea











Shanghai Comp










Sensex 30




Note: all releases are listed in local time.

Important Information

Econoday Inc. is a US company that provides financial commentary and indicators to industry professionals. All information provided and views expressed are those of Econoday. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Past performance is not a reliable indicator of future results. The value of investments can go down as well as up and investors may not get back the amount invested.