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On 1 February 2019 - US stocks steady after strong US employment and manufacturing reports

Anne D Picker

Anne D Picker - Econoday

Eurozone data point to stronger case for policy easing; Nissan notes Brexit concerns as it cancels UK auto plans.

US markets

US stocks were little changed Friday but closed higher on the week. The Dow finished up 0.3 percent on the day and 1.3 percent on the week, the S&P rose 0.1 percent on the day and 1.6 percent on the week and the Nasdaq fell 0.2 percent on the day but gained 1.4 percent on the week.

A drop in Amazon contributed to the fall in Nasdaq on Friday after reporting fourth-quarter earnings late Thursday. Although reported earnings of US$6.04 per share beat analysts’ expectations for US$5.68 per share, the company’s guidance about first-quarter revenues fell short of estimates, while plans for increased investment spending in 2019 also weighed on sentiment.

The January employment report released Friday showed very strong demand for labour at the start of the year, with nonfarm payrolls increasing by 304,000, well above the revised December increase of 222,000 and almost doubling the consensus forecast of 158,000. Job growth was broad-based across sectors, with the construction and trade and transportation industries seeing particularly strong hiring. The report’s household survey showed a small increase in the unemployment rate from 3.9 percent in December to 4.0 percent in January with the participation rate also picking up slightly. Growth in average hourly earnings slowed to 0,1 percent on the month wand was steady at 3.2 percent on the year, likely reinforcing the Federal Reserve’s assessment that price pressures remain subdued for now. 

Survey data published Friday also indicated improved conditions in the manufacturing sector in January. The ISM manufacturing index increased from 54.3 in December to 56.6 in January, above the consensus forecast of 54.0, while the manufacturing PMI also showed an increase in the headline index from 53.8 to 54.9. Respondents to both surveys reported stronger growth in domestic new orders, offsetting weaker export orders.

President Trump and Chinese Vice-Premier Liu both stated that progress had been made at US-China trade negotiations that concluded late Thursday. Although no deal was concluded, Chinese state media reported that China has promised to increase US imports, with further high-level negotiations planned for mid-February. The US is scheduled to increase tariff rates on Chinese goods from 10 percent to 25 percent at the start of March.

These data reflect observations at the close of trading Friday. Gold lost US$3.10 to US$1,322.10 and dated Brent spot crude was up US$1.91 to US$62.75. The US dollar made solid gains against most major currencies after the employment report with the exception of modest declines against the euro and the Canadian dollar. The yield on the US Treasury 30 year bond gained 3 basis points to 3.03 percent while the 10 year note increased 5 basis points to 2.68 percent.

European markets

Most European markets advanced Friday but were mixed on the week. The FTSE advanced 0.3 percent on the day and outperformed other major global indices with an increase of 3.1 percent on the week, while the CAC gained 0.5 percent on the day and 1.9 percent on the week. German shares, however, underperformed, with the DAX up just 0.1 percent on the day and closing down 0.9 percent on the week. 

Regional PMI surveys were the main focus of the European data calendar Friday and generally indicated a weak start to the year. The headline index for the Eurozone manufacturing PMI fell for a sixth consecutive month from 51.4 in December to 50.5 in January, its lowest level since November 2014. The headline index for the German manufacturing PMI fell from 51.5 to 49.7, indicating contraction in the sector for the first time in more than four years. The index for the equivalent French survey in contrast showed an improvement from 49.7 to 51.2 but still suggests that activity is subdued. Meanwhile, the provisional estimate for the headline HICP measure of inflation for the Eurozone showed a decline from 1.6 percent in December to 1.4 percent in January, though the underlying measure picked up slightly from 1.0 percent to 1.1 percent. Together, these data releases provide further support for the view that the European Central Bank may need to deliver additional policy easing in coming months. 

The UK’s manufacturing PMI also showed a fall in its headline index from 54.2 in December to a three-month low of 52.8 in January. Output and new orders were reported to have been weak, while the survey’s measure of business confidence fell to a thirty-month low, with ongoing Brexit concerns likely a major factor. Japanese automaker Nissan announced over the weekend that it no longer plans to produce a new model at its UK plant but will instead produce it in Japan. 
Although the company cited “business reasons” for this decision, it also noted that the continued uncertainty about the UK’s relationship with the European Union was not helping companies plan for the future. 

Asia Pacific Markets

Most Asian markets closed Friday flat or slightly lower on the day and were mixed on the week. The Shanghai Composite index was the main exception to regional weakness on Friday, closing 1.3 percent higher on the day and gaining 0.6 percent on the week. Japanese stocks finished the week little changed. The Nikkei increased 0.1 percent on the day and on the week, while the Topix closed down 0.2 percent on the day and down 0.1 percent on the week. Australia’s All 
Ordinaries index was flat on the day and down slightly on the week, while Hong Kong’s Hang Seng index was flat on the day but up 1.3 percent on the week.

Major banks were among the weaker performers on the Australian stock market Friday ahead of the publication Monday of a government report into misconduct relating to banks’ lending practices. The report is expected to recommend tighter credit procedures and stricter rules on the range of financial products banks offer to consumers.

Regional PMI surveys showed conditions weakened in January in the Japanese manufacturing and services sectors and the Chinese manufacturing sector but improved in the Indian manufacturing sector. New export orders were particularly weak in Japan, with respondents citing the impact of US-China trade tensions. Japan’s unemployment rate fell from 2.5 percent in November to 2.4 percent in December. 

Looking forward

Central Bank activities

Feb 4

Australia

Reserve Bank of Australia Monetary Policy Announcement

Feb 7

UK

Bank of England Monetary Policy Announcement & Minutes

The following indicators will be released this week...

Europe

Feb 4

Italy

Consumer Price Index (January)

Feb 5

Eurozone

Retail Sales (December)

 

UK

CIPS/PMI Services Index (January)

Feb 6

Germany

Manufacturers' Orders (December)

Feb 7

France

Merchandise Trade (December)

 

Germany

Industrial Production (December)

 

Italy

Retail Sales (December)

Feb 8

France

Industrial Production (December)

 

Germany

Merchandise Trade (December)

 

Italy

Industrial Production (December)

Asia Pacific

Feb 4

Australia

Merchandise Trade (December)

 

Australia

Retail Sales (December)

Americas

Feb 4

US

Factory Orders (November)

Feb 5

Canada

Merchandise Trade (December)

 

US

International Trade (November)

Feb 8

Canada

Housing Starts (January)

 

Canada

Labor Force Survey (January)

Global Stock Markets

 

Index

Feb 1 2019

Daily Change

% Change Daily

North America

United States

Dow

25063.89

64.22

0.3

 

NASDAQ

7263.87

-17.87

-0.2

 

S&P 500

2706.53

2.43

0.1

Canada

S&P/TSX Comp

15506.31

-34.29

-0.2

Europe

UK

FTSE 100

7020.22

51.37

0.7

France

CAC

5019.26

26.54

0.5

Germany

XETRA DAX

11180.66

7.56

0.1

Italy

MIB

19576.77

-154.01

-0.8

Spain

Ibex 35

9019.40

-37.30

-0.4

Sweden

OMX Stockholm 30

1525.69

10.27

0.7

Switzerland

SMI

8996.36

27.09

0.3

Asia/Pacific

Australia

All Ordinaries

5935.30

-1.98

0.0

Japan

Nikkei 225

20788.39

14.90

0.1

 

Topix

1564.63

-2.86

-0.2

Hong Kong

Hang Seng

27930.74

-11.73

0.0

S. Korea

Kospi

2203.46

-1.39

-0.1

Singapore

STI

3188.68

-1.49

0.0

China

Shanghai Comp

2618.23

33.66

1.3

Taiwan

TAIEX

*

*

*

India

Sensex 30

36469.43

212.74

0.6

* Market closed
Source: Haver Analytics

Note: all releases are listed in local time.

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