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On 03 July 2019 - US, Europe up on hopes for rate cuts, Asia mixed

Anne D Picker

Anne D Picker - Econoday

Fed, ECB appointments bolster expectations for easing.

US markets

US stocks rose and bond yields fell Wednesday on expectations for central bank accommodation in the US and Europe. Reports that President Trump would nominate two dovish economists to the Fed board bolstered expectations for policy easing this year and beyond.

News that IMF Managing Director Christine Lagarde would be named to head the ECB sustained expectations for European rate cuts, along with comments from Bank of England Governor Mark Carney, who hinted at policy accommodation to offset the ill effect of trade disputes and a disorderly Brexit.

Trump is expected to name Christopher Waller, an economics deputy to St. Louis Fed President James Bullard, who is regarded as dovish. The other nominee, Judy Shelton, an adviser to Trump, is known for her unconventional views, including her support for the gold standard, and her recent calls for rate cuts.

In a shortened session ahead of Thursday’s closed markets due to the Independence Day holiday, the dow industrials rose 0.7 percent; the S&P gained 0.8 percent, and the NASDAQ rose 0.8 percent.  Each of the major indexes set record closing highs. US Treasury coupon yields fell, with the US 10-year note sliding further below 2 percent to 1.95 percent. Utilities and consumer staples paying high dividends led the equities gains as bond yields fell.

Household products maker Procter and Gamble (up 2.3 percent) and pharma Merck (up 1.6 percent) were leaders. Among other companies in play, Sprint rose 1.5 percent, as the possible merger with T-Mobile was reportedly back on the table. Tesla rallied 4.6 after announcing its quarterly deliveries rose. Security firm Symantec rose 13.6 on news it may be acquired by Broadcom.

In US economic data, traders focused on signs of weakness to support the view that rate cuts are coming. A bigger deficit with China made for a wider-than-expected US trade deficit of $55.5 billion in May, feeding expectations for a weaker GDP figure in the second quarter.  May's deficit with China came in at $30.2 billion vs. $26.9 billion in April. Separately, ADP saw only a 102,000 rise in private payrolls for June, compared with 41,000 in May and the actual private payroll rise in May as reported by the government of 90,000.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude was up US$1.50 at US$63.90 while gold was up US$8.48 at $1417.98. The US dollar fell against the Australian and the Canadian dollar; it rose slightly against most other major currencies. The yield on the US Treasury 30-year bond yield fell 4 basis points to 2.47 percent while the yield on the 10-year note was off 3 basis points at 1.95 percent.

European markets

European equities rose Wednesday as markets welcomed news that IMF Managing Director Christine Lagarde would head the ECB. Lagarde is expected to maintain ECB President Mario Draghi’s dovish stance, and bolstered expectations for fresh monetary stimulus.

Italian stocks rallied additionally, with banks leading the way, on news the European Commission would not press Italy for action on its fiscal deficits.

The European STOXX 600 rose 0.9 percent, the German DAX gained 0.7 percent, the French CAC rose 0.8 percent, and the UK FTSE 100 rose 0.7 percent.  Italy’s FT-MIB surged by 2.4 percent.

Defensive sectors and shares with relatively high dividends, such as health care, food and beverages, utilities, and real estate, advanced on expectations for continued low interest rates.

UK shares were supported by weakness in sterling, and expectations for UK rate cuts following dovish remarks Tuesday from Bank of England Governor Mark Carney, who said trade disputes and Brexit fallout might require a supportive policy response.

Among UK winners, Telford Homes rallied by 13% on news it would be acquired by after U.S. real estate firm CBRE.  Flutter Entertainment rose 12 percent on takeover speculation.

In economic news, UK CIPS/PMI was weaker than expected at 50.2 in June, down 0.8 points from May, and indicative of stagnation in business activity. New orders decreased for the fifth time in half a year and backlogs were down for a ninth consecutive month, their longest period of decline since 2011/12.

Asia Pacific Markets

Asian markets were mixed Wednesday, with a busy regional data calendar showing weakness in the services sector in key economies but stronger demand for Australian exports. Australia’s All Ordinaries index closed up 0.4 percent, with mining stocks among the stronger performers. Chinese and Japanese stocks, however, closed lower, with the Shanghai Composite index down 0.9 percent, the Nikkei down 0.5 percent, and the Topix down 0.7 percent. Hong Kong’s Hang Seng index was little changed, dropping 0.1 percent on the day.

Asian PMI surveys published Wednesday generally showed weaker or at best steady conditions in the sectors and economies covered in June. The headline index for the Japanese service sector survey was 50.8 in June, little changed from 50.7 in May, and showing activity remains subdued but slightly stronger than in the manufacturing sector. The equivalent index for the Chinese and Indian service sector surveys fell from 52.7 to 52.0 and from 50.2 to 49.6 respectively, in both cases echoing a deterioration in manufacturing sector conditions reported earlier in the week.  Singapore’s economy-wide PMI survey also indicated weaker conditions, with its headline index falling from 52.1 in May to 50.6 in June.

Australia's trade balance surplus widened from a revised A$4.82 billion in April to a record A$5.74 billion in June. Exports rose 3.6 percent on the month in May up from a revised increase of 1.6 percent in April, largely driven by stronger exports of non-rural goods, with higher iron ore prices and a weaker currency having a significant positive impact. Imports grew 1.5 percent on the month, slowing from 2.3 percent previously.

Looking forward

On Thursday in Asia-Pacific: Australian retail sales are due for release. In Europe: Eurozone retail sales and Swiss CPI data will be released. The US government is closed for the Independence Day holiday. On Friday, the US employment report will be released.

Global Stock Markets

 

Index

3 Jul 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26966

179.32

0.7

 

NASDAQ

8170.23

61.14

0.8

 

S&P 500

2995.82

22.81

0.8

Canada

S&P/TSX Comp

16576.52

105.23

0.6

Europe

 

 

 

 

UK

FTSE 100

7609.32

50.13

0.7

France

CAC

5618.81

41.99

0.8

Germany

XETRA DAX

12616.24

89.52

0.7

Italy

MIB

21905.34

512.47

2.4

Spain

Ibex 35

9394.4

112.90

1.2

Sweden

OMX Stockholm 30

1648.84

1.82

0.1

Switzerland

SMI

10066.53

45.60

0.5

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6770.12

29.02

0.4

Japan

Nikkei 225

21638.16

-116.11

-0.5

 

Topix

1579.54

-10.30

-0.6

Hong Kong

Hang Seng

28855.14

-20.42

-0.1

S. Korea

Kospi

2096.02

-26.00

-1.2

Singapore

STI

3367.8

-3.00

-0.1

China

Shanghai Comp

3015.26

-28.68

-0.9

Taiwan

TAIEX

10743.77

-121.35

-1.1

India

Sensex 30

39839.25

22.77

0.1

*Markets closed

 

 

 

Data Source — Haver Analytics

 

 

 

Note: all releases are listed in local time.

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