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On 3 April 2019 - Global stocks advance on Chinese data and headway on US-China trade talks

Anne D Picker

Anne D Picker - Econoday

UK Prime Minister May meets opposition leader to seek bipartisan support for a Brexit deal.

US markets

US stocks closed higher Wednesday after solid PMI data in both the US and China and renewed confidence about the prospects for a US-China trade deal. The Dow rose 0.1 percent, the S&P closed up 0.2 percent on the day, and the Nasdaq advanced 0.6 percent. Confidence about US-China trade talks provided a boost to chip manufacturers in particular, with Advanced Micro Devices and Intel Corp among the stronger performers on the day. 

Reports indicate that the US and China are close to agreement on a trade deal, with President Trump’s economic adviser, Larry Kudlow, telling reporters that negotiators are “making good headway”. Chinese Vice President Liu He has arrived in Washington to join the negotiations. Intellectual property protections and enforcement mechanisms are reported to be the main issues still to be finalised. 

The ISM non-manufacturing report and the services PMI survey both showed conditions remained strong in March but moderated from the previous month, offsetting signs of improvement in the manufacturing sector in equivalent surveys published earlier in the week. The ISM report’s main index fell from 59.7 in February to 56.1 in March, below the consensus forecast of 58.0, with respondents reporting declines in both new orders and new export orders but an increase in backlogs and stronger employment. The services PMI survey’s headline index fell from 56.0 in February, its highest level since last July, to 55.3 in March, though the fall was not as sharp as expected, with the consensus forecast at 54.8. 

The ADP Employment Report published Wednesday estimates that Friday’s official employment report will show an increase in private payrolls in March of 129,000, compared with the consensus estimate of 168,000. Payrolls were reported to have increased by just 25,000 in February, well below the ADP report’s initial estimate of 168,000, but today’s report estimates that the February payroll number will be revised sharply higher to 197,000. 

These data reflect observations at 4pm US ET. Gold fell US$0.90 to US$1,294.50 while dated Brent spot crude rose US$0.05 to US$69.42. The US dollar posted a solid gain against the Australian dollar but was flat or little changed against other major currencies. The yield on the US Treasury 30-year bond rose 5 basis points to 2.93 percent and the yield on the 10-year note rose 4 basis points to 2.52 percent.

European markets

European markets closed higher Wednesday, but gains were uneven. The FTSE underperformed, up 0.4 percent, with a stronger pound impacting trade-sensitive shares, while the CAC advanced 0.8 percent. Stronger Chinese data and renewed hopes for an orderly Brexit and a US-China trade deal provided a bigger boost to German trade-sensitive shares, with the DAX up 1.7 percent on the day.

United Kingdom Prime Minister Theresa May met with opposition leader Jeremy Corbyn Wednesday in an attempt to secure bipartisan agreement for a deal that could break the Brexit stalemate. The two leaders agreed to continue negotiations in coming days. The UK has until April 12 to propose a withdrawal agreement to the European Union that would allow some further delay or else it will exit the EU on that day with no deal in place. German Chancellor Angela Merkel reaffirmed Wednesday her commitment to do all she can to ensure an orderly Brexit.

The PMI survey for the Eurozone services sector showed a solid improvement in conditions in March, with the main index increasing from 52.8 to 53.3. Weaker conditions in the manufacturing sector, however, pushed the composite index, covering both sectors, down from 51.9 to 51.6, suggesting that regional GDP is likely to grow by only around 0.2 percent in the three months to March. This, in turn, likely increases the chances that the European Central Bank will respond with more aggressive policy stimulus in coming months. The increase in the Eurozone service sector index was driven by Spain and Italy, with the surveys indicating that conditions in the German sector moderated slightly and that the French service sector contracted in March. The UK service sector PMI survey also indicates that the sector contracted in March for the first time since 2016, with its headline index falling from 51.3 to 48.9. Combined with moves in the previously-published manufacturing and construction indices, this pushed the composite index down from 51.4 in February to 50.0 in March, with Brexit uncertainty again a major factor driving this weakness. 

Eurozone retail sales rose 0.3 on the month in February while January growth was revised down from 1.3 percent to 0.9 percent, with year-on-year growth picking up from 2.2 percent to 2.8 percent. Solid growth in Germany and Spain was offset by a small fall in French retail sales. With the average growth in January and February well above the average for the three months to December, retail sales will likely make a solid contribution to headline GDP growth in the three months to March.

Asia Pacific Markets

Most Asian markets posted solid gains Wednesday after survey data showed stronger conditions in the Chinese services sector. The Shanghai Composite index, Hong Kong’s Hang Seng index, and Korea’s Kospi index all advanced 1.2 percent on the day with markets in Japan, Australia and Singapore also closing higher. India’s Sensex index was the regional underperformer ahead of the Reserve Bank of India’s policy meeting, down 0.5 percent on the day.

The PMI survey for China’s services sector showed a strong pick-up in activity in March, with the headline index rising from 51.1 to 54.4, reinforcing the increase in the manufacturing index reported earlier in the week. The equivalent index for Japan’s services sector, however, fell from 52.3 in February to 52.0 in March, offsetting a small increase in the manufacturing index. Economy-wide PMI surveys for Hong Kong and Singapore were also published Wednesday and showed a further contraction in Hong Kong activity in March but a rebound in conditions in Singapore.

Australian trade data showed a fourth consecutive increase in the surplus from a revised A$4.351 billion in January to A$4.801 billion in February, the biggest surplus since December 2016. Growth in exports and imports both weakened from the previous month but imports to a greater extent. Australian retail sales grew 0.8 percent on the month in February, up from 0.1 percent in January, with this improvement broad-based across major categories and also across different areas of the country.

Looking forward

The global data calendar is relatively light Thursday. The Reserve Bank of India will conclude its policy meeting shortly after the release of the PMI survey for the Indian services sector, followed by the minutes of the latest European Central Bank policy meeting and US labour market data.

Global Stock Markets

 

Index

Apr 3 2019

Daily Change

% Change Daily

North America

United States

Dow

26218.13

39.00

0.1

 

NASDAQ

7895.56

46.87

0.6

 

S&P 500

2873.4

6.16

0.2

Canada

S&P/TSX Comp

16279.86

15.99

0.1

Europe

UK

FTSE 100

7418.28

27.16

0.4

France

CAC

5468.91

45.44

0.8

Germany

XETRA DAX

11954.4

199.61

1.7

Italy

MIB

21755.88

232.96

1.1

Spain

Ibex 35

9487.8

124.30

1.3

Sweden

OMX Stockholm 30

1622.38

28.43

1.8

Switzerland

SMI

9570.09

33.52

0.4

Asia/Pacific

Australia

All Ordinaries

6368.73

40.91

0.6

Japan

Nikkei 225

21713.21

207.90

1.0

 

Topix

1621.77

10.08

0.6

Hong Kong

Hang Seng

29986.39

361.72

1.2

S. Korea

Kospi

2203.27

26.09

1.2

Singapore

STI

3311.27

31.49

1.0

China

Shanghai Comp

3216.3

39.48

1.2

Taiwan

TAIEX

10704.38

14.08

0.1

India

Sensex 30

38877.12

-179.53

-0.5

Source: Haver Analytics

Note: all releases are listed in local time.

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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.