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On 03 June 2019 - US stocks mixed with tech stocks hit by regulatory worries

Anne D Picker

Anne D Picker - Econoday

Gold, US treasuries rally as hopes rise for Fed easing.

US markets

US shares were weaker Monday with big tech shares hit hard on regulatory worries and ongoing fallout from the US-China trade war. The tech-heavy NASDAQ was off 1.6 percent, the Dow industrials closed little changed and the S&P 500 dropped 0.3 percent.

Notable tech losers included Facebook, down nearly 8 percent on worries about an FTC anti-competition probe; Amazon, down 5 percent also on reports of possible pending FTC action; Alphabet, down 5 percent on a report the Department of Justice is considering anti-trust action. Apple lost 1 percent, and Microsoft was down 3 percent.  Fedex lost 1 percent on reports Chinese authorities were investigating the firm for irregularities involving Huawei deliveries. Among gainers, Dow component Verizon Communications bounced back 3.7 precent to regain the bulk of Friday’s sharp losses. 

US Treasuries advanced, and futures prices increasingly reflected expectations for at least one US rate cut this year, with a boost from a weak US PMI manufacturing reading, and St. Louis Fed President Robert Bullard’s comment that a rate cut may be “warranted soon. “

At a very weak 50.5, the final PMI manufacturing index for May is 1 tenth below its 50.6 flash estimate and 2.1 points below final April. This index broke to 10-year lows in the May flash and is at risk of falling below 50 and into contraction. For now, the index is signaling only marginal growth for a US manufacturing sector that is being held down by weak exports and risks, given building trade tensions with China and Mexico, of falling into outright contraction.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude was down US$1.21 to $60.78 while gold was US$19.75 higher at $1,325.40. The US dollar was weaker against most major currencies. The yield on the US Treasury 30-year bond down 3 basis points to 2.54 percent while the yield on the 10-year note was down 4 basis points to 2.08 percent.

In US economic news, the PCE price index excluding food and energy hit expectations at a 0.2 percent monthly gain in April with the year-on-year also hitting expectations at 1.6 percent. The overall PCE price index rose 0.3 percent with this yearly rate also rising 1 tenth, to 1.5 percent.

European markets

European shares recovered from early losses to end higher as risk tolerance returned, at least briefly, despite the latest twist in the US-China trade dispute -- China’s threat to investigate Fedex.

The European STOXX 600 rose 0.4 percent after setting nearly four-month lows Friday. The German DAX was up 0.6 percent, the French CAC rose 0.6 percent, and UK FTSE 100 rose 0.3 percent.

Healthcare shares were relatively strong, up 1.4 percent. Merck rose 2.1 percent.

Technology shares fell 0.3 percent, as the sector remained depressed by trade worries.

In economic news, UK manufacturing had a surprisingly poor May. At 49.4, the sector PMI was down sharply from April's unrevised 53.1 and below the 50-expansion threshold for the first time since July 2016.

Germany’s flash sector PMI was unrevised at 44.3 in the final report for May. This left a 0.1-point dip versus the final April outturn and one of the weakest readings since mid-2012. Taken at face value, the implications are that German manufacturing is still deeply mired in recession.

The final French manufacturing PMI for May weighed in at 50.6, unchanged from its flash estimate and so still 0.6 points firmer than both April's final reading and the 50.0 expansion threshold. This was its first reading in positive growth territory since February.

Asia Pacific Markets

Asian markets were mixed though mostly lower Monday, following the lead set by US stocks on Friday, with concerns about US-China trade tensions the main factor weighing on investor sentiment. Japan’s Nikkei and Topix indices both closed the day down 0.9 percent, while the Shanghai Composite index fell 0.3 percent.  Strongly resisting the bearish mood elsewhere, Korea’s Kospi index and India’s Sensex closed up 1.3 percent and 1.4 percent respectively.

Australia’s All Ordinaries index posted a large fall, down 1.2 percent, ahead of Tuesday’s Reserve Bank of Australia policy meeting. Officials at this meeting are expected to cut the main policy rate by 25 basis points from 1.50 percent to a new record low of 1.25 percent. This rate has been on hold since mid-2016, but recent comments from RBA officials indicate they consider a rate cut is necessary to help push headline inflation back towards their target range of 2.0 percent to 3.0 percent. Headline inflation has been below that target range for the last three quarters and for nine of the eleven quarters since the last change in policy rates.

PMI surveys for the manufacturing sectors in Japan, China, and India were the main highlights of the Asia data calendar Monday and provided mixed results. Japan’s survey showed a drop in its headline index from 50.2 in April to 49.8 in May, while headline index for the Chinese survey was unchanged at 50.2 but still indicates that conditions are weak. Respondents to the Japanese and Chinese surveys both cited renewed US-China trade tensions as a major factor for weakness in the manufacturing sector. India’s PMI survey, however, showed an increase in its headline index from 51.8 in April to 52.7 in May, perhaps reflecting its lower exposure to global trade. Data for this survey are collected mid-month and pre-dated the announcement of national election results that showed PrIme Minister Narendra Modi's government retained office.

Looking forward

Monetary policy will be the focus Tuesday amid expectations for central banks to respond to gathering weakness in the global economy. First will be the Reserve Bank of Australia policy announcement, which is expected to show a 25 basis point rate cut. Second, Fed Chairman Jay Powell is expected to speak at a Chicago Fed conference at 8:45 am Chicago time, and markets will be watching for any clue that he is ready to shift toward a more accommodative stance. Markets are increasingly pricing in at least one US rate cut this year. On the data front, the Eurozone flash HICP and unemployment data are due.

Global Stock Markets

 

Index

3 Jun 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

24819.78

25347.77

0.0

 

NASDAQ

7333.02

7607.35

-1.6

 

S&P 500

2744.45

2802.39

-0.3

Canada

S&P/TSX Comp

16015.89

16297.46

-0.1

Europe

 

 

 

 

UK

FTSE 100

7184.8

7268.95

0.3

France

CAC

5241.46

5312.69

0.6

Germany

XETRA DAX

11792.81

12027.05

0.6

Italy

MIB

19874.24

20260.98

0.4

Spain

Ibex 35

9022.8

9191.80

0.2

Sweden

OMX Stockholm 30

1518.23

1565.12

0.5

Switzerland

SMI

9602.73

9680.87

0.8

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6410.76

6580.39

-1.2

Japan

Nikkei 225

20410.88

21260.14

-0.9

 

Topix

1498.96

1550.99

-0.9

Hong Kong

Hang Seng

26893.86

27390.81

0.0

S. Korea

Kospi

2067.85

2048.83

1.3

Singapore

STI

3123.46

3165.32

0.2

China

Shanghai Comp

2890.08

2909.91

-0.3

Taiwan

TAIEX

10500.07

10312.31

0.0

India

Sensex 30

40267.62

39749.73

1.4

*Markets closed

 

 

 

Data Source — Haver Analytics

 

 

 

Note: all releases are listed in local time.

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