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On 01 August 2019 - US down on Trump tariff tweet; Europe up; Asia off

Anne D Picker

Anne D Picker - Econoday

Trump to impose 10 percent tariffs on another $300 billion in China exports.

US markets

US stocks dropped Thursday after President Trump tweeted that he would impose 10 percent tariffs on the remaining $300 billion of Chinese exports to the US on Sept. 1, effectively ending the US-China trade truce. The Dow industrials fell 1.0 percent, the S&P 500 fell 0.9 percent, and the NASDAQ declined 0.8 percent.

Major US equities indexes had been up about 1 percent at midday, with the FAANG stocks leading. Those same stocks reversed sharply and led the afternoon selloff on Trump’s trade salvo. Oil prices plunged on combined reaction to the Trump trade news, and the Federal Reserve’s policy announcement Wednesday.

Among sectors, energy, financials, and industrial shares underperformed, while defensive sectors did better. Some analysts said the trade news raises the prospect of more aggressive Fed rate cuts.

General Motors ended down 0.5 percent after rallying earlier on a big earnings beat, reflecting strong truck sales. Also reversed were early gains for Verizon Communications which ended fractionally lower despite an earnings beat and a big gain in wireless subscribers. Kellogg, the cereal maker, rocketed by 9.5 percent on a big earnings beat. Apple Computer, the market favorite, dropped 2.2 percent on the US-China trade news. Exxon Mobil was off 2.5 percent on the oil price drop.

In US economic news, new jobless claims were steady and low and consistent with strong demand for labor. Though up 8,000 in the July 27 week, new claims remain favorable at 215,000 with the 4-week average especially favorable at 211,500. Extending a straight slope down, ISM's manufacturing index fell 5 tenths in July to a lower-than-expected 51.2 to indicate only slight monthly growth in composite activity.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude fell US$4.01 to US$61.04 while gold rose US$16.70 to US$1,454.50. The US dollar fell against most major currencies. The yield on the US Treasury 30-year bond yield dropped 9 basis points to 2.44 percent while the yield on the 10-year note fell 12 basis points to 1.89 percent.

European markets

Most European equity markets rose Thursday on company news, though UK markets underperformed after the Bank of England kept rates steady but downgraded the outlook on worries about Brexit and slowing global growth. The Bank of England remains an outlier among major central banks in giving no sign it is considering easing. Meanwhile, European PMI data pointed to more economic sluggishness.

The Europe-wide STOXX 600 rose 0.5 percent, the German DAX rose 0.5 percent, the French CAC rose 0.7 percent, and the UK FTSE 100 fell 0.03 percent.

Financial services, technology, and personal and household goods stocks outperformed, while basic resources and oil and gas were notable losers on falling commodities prices following the Federal Reserve’s policy announcement Wednesday.

Among stocks in focus, Dutch bank ING fell 4.8 percent on an earnings miss, and UK bank Standard Chartered rose 3.3 percent on a positive earnings surprise. Royal Dutch Shell fell 5 percent, and Rio Tinto fell 3.3 percent on commodity prices weakness. British American Tobacco rose 6.9 percent on strong earnings. London Stock Exchange jumped by 6.5 percent after formally announcing its purchase of Refinitiv, the information company.

In economic news, the August BOE MPC meeting lived up to market expectations and left policy on hold and retained a tightening bias. However, compared with June, the bias has been modified slightly and higher rates now require both a smooth Brexit and recovery in the global economy. In data, UK manufacturing continued to contract in July. At 48.0, the sector PMI was unchanged from June's six-and-a-half year low and short of the 50-expansion threshold for a third month in a row.  Separately, flash German PMI was revised up just 0.1 point to 43.2 in the final report for July. At a 7-year low, the index still stands some 1.8 points short of its final level in June and warns that German manufacturing remains mired in recession. French final manufacturing PMI weighed in at 49.7, down 0.3 points versus its flash estimate and now some 2.2 points weaker than June's final print.

Asia Pacific Markets

Most major Asian markets closed lower Thursday, following the lead set by US stocks after policy guidance from Federal Reserve indicating that its decision to cut rates Wednesday is not the start of an aggressive easing cycle. PMI data published Tuesday also provided further evidence of weakness in Asian manufacturing. The Shanghai Composite index and Hong Kong’s Hang Seng index were among the weakest performers in the region, both closing down 0.8 percent, with Australia’s All Ordinaries falling 0.4 percent. Japan was the main exception to the regional trend, with the Federal Reserve guidance driving weakness in the Japanese yen and providing a boost to shares of major Japanese exporters. Both the Nikkei and Topix indices closed marginally higher, up 0.1 percent on the day.

PMI surveys for the manufacturing sector in Japan, China and India showed conditions improved marginally but remained subdued in July, The headline index rose from 49.3 in June to 49.4 in July for Japan, from 49.4 to 49.9 in China, and from 52.1 to 52.5 in India. Global trade tensions and weak external demand were widely cited by survey respondents as major factors weighing on activity and sentiment, with the measure of new export orders for all surveys showing declines in July. Service sector PMI surveys for all three counties will be published in coming days.

Looking forward

On Friday in Asia/Pacific, Australian retail sales are due, and Bank of Japan MPB minutes. From Europe, it’s Eurozone PPI and retail sales, and Italian retail sales and industrial production, Swiss CPI and Swiss SVME purchasing managers index, and UK PMI construction. In North America, it’s Canadian merchandise trade, and from the US: consumer sentiment, employment, factory orders, and international trade data.

Global Stock Markets

 

Index

01 Aug 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26583.42

-280.85

-1.0

 

NASDAQ

8111.12

-64.30

-0.8

 

S&P 500

2954.05

-25.99

-0.9

Canada

S&P/TSX Comp

16373.24

-25.94

-0.2

Europe

 

 

 

 

UK

FTSE 100

7584.87

-1.91

0.0

France

CAC

5557.41

38.51

0.7

Germany

XETRA DAX

12253.15

64.11

0.5

Italy

MIB

21566.91

168.72

0.8

Spain

Ibex 35

9038.2

67.20

0.7

Sweden

OMX Stockholm 30

1612.91

13.13

0.8

Switzerland

SMI

9919.27

*

*

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6871.94

-24.72

-0.4

Japan

Nikkei 225

21540.99

19.46

0.1

 

Topix

1567.35

2.21

0.1

Hong Kong

Hang Seng

27565.7

-212.05

-0.8

S. Korea

Kospi

2017.34

-7.21

-0.4

Singapore

STI

3291.75

-9.00

-0.3

China

Shanghai Comp

2908.77

-23.74

-0.8

Taiwan

TAIEX

10731.75

-92.06

-0.9

India

Sensex 30

37018.32

-462.80

-1.3

Note: all releases are listed in local time.

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