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On 04 June 2019 - Stocks rebound on Fed policy hopes

Anne D Picker

Anne D Picker - Econoday

Fed Chairman says will "act as appropriate" to offset impact of trade war.

US markets

US shares rallied Tuesday from oversold conditions and as Fed Chairman Powell appeared to say the Fed may adopt a more accommodative policy stance. The Dow industrials rose 2.1 percent; the S&P 500 gained 2.1 percent, and the NASDAQ was up 2.6 percent.

Many traders were heartened by comments from Fed Chairman Powell, who said the Fed was watching closely and would “act as appropriate” to head off the ill effects of the US-China trade war. Powell did not repeat his standard language about remaining patient before altering policy.

Technology stocks led the recovery, rising more than 2 percent, just as they led the selloff Monday. Tech shares have been hit hard for weeks on fallout from the US-China trade war, and on anti-trust worries that surfaced on Monday.  On Tuesday, Apple gained 3.7 percent, while Alphabet, Amazon and Facebook all rose about 2 percent. Bank shares advanced on the Fed rate cut hopes, with Bank America and Citicorp up 4.7 percent and 5.2 percent, respectively.

US Treasury yields rose on the switch back into risk assets, commodities rallied, and the dollar weakened.

US data came in soft. At an as-expected minus 0.8 percent, April's factory orders report closes the book on what was a weak month for US manufacturing. The split between the report's two main components shows a 0.5 percent rise for nondurable goods -- the new data in today's report where strength is tied to petroleum and coal -- and a 2.1 percent dip for durable orders.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude was up US$1.12 to $62.02 while gold was US$1.59 higher at $1,326.77. The US dollar was weaker against most major currencies. The yield on the US Treasury 30-year bond was up 7 basis points to 2.60 percent while the yield on the 10-year note was up 5 basis points to 2.12 percent.

European markets

European shares recovered from opening losses to end higher for a second day Tuesday as the market appeared oversold, with automakers and auto parts suppliers setting the pace.

The European STOXX 600 ended up 0.7 percent after falling more than 0.5 percent at the open. The German DAX ended up 1.5 percent, the French CAC rose 0.5 percent, and the UK FTSE 100 rose 0.4 percent. Automakers VW, up 3.3 percent, and Daimler, up 4.1 percent, led the gains after RBC initiated coverage with buy ratings.  Many stocks appeared subject to a short squeeze after weeks of declines, largely in response to bearish US-China trade news.

Technology shares recovered from early sharp losses to end down only 0.2 percent after initial weakness on follow-through from bearish US regulatory news Monday. Bank stocks gained 2.1 percent, with support from speculation the ECB is poised to ease.
Italian shares were buoyed by Prime Minister Silvio Conte’s comment that Italy would respect EU budget rules until the rules are changed. The  Italy FTSE-MIB rose 1.8 percent.

In economic news, UK construction had an unexpectedly poor May. The sector PMI fell nearly 2 points to 48.6, its third sub-50 reading in the last four months and indicative of the sharpest contraction in business activity since March 2018.

Eurozone inflation fell surprisingly sharply in May. The provisional report put the annual rate at just 1.2 percent, down fully 0.5 percentage points versus its final April mark and easily more than reversing that month's 0.3 percentage point bounce. This equalled the lowest yearly post since February 2018. Distortions caused by the timing of Easter have had a significant impact on the monthly profile since March but the May results are clearly soft.

Asia Pacific Markets

Asian markets were mixed Tuesday, with markets underperforming across greater China but flat or up modestly elsewhere in the region. Ongoing concerns about disputes with the US over trade and technology issues weighed on the Shanghai Composite index, down 1.0 percent on the day, with the main index in Hong Kong and Taiwan also closing down 0.5 percent and 0.7 percent respectively. Japan’s Nikkei and Topix indices, however, were both unchanged on the day. Singapore’s STI index closed up 0.6 percent, while Australia’s All Ordinaries index advanced 0.1 percent.

The Reserve Bank of Australia cut its main policy rate by 25 basis points from 1.50 percent to a new a record-low of 1.25 percent, in line with the consensus forecast. This rate had been on hold since mid-2016, but recent comments from RBA officials had indicated this move was coming. Officials now have a more subdued assessment of labor market conditions and concluded that the economy could likely sustain a lower level of unemployment without triggering an unwelcome increase in inflation. Inflation has now been below the RBA’s target range of 2.0 percent to 3.0 percent for three consecutive quarters, and though they still expect price pressures to build over the medium term, they now consider that a rate cut would "achieve more assured progress towards the inflation target”.

Speaking after the decision was announced, RBA Governor Philip Lowe stressed that there was some flexibility around the inflation target but that if inflation were to start too low for too long it would have an impact on long-term inflation expectations and make it more difficult to meet the target. He also said that “it is not unreasonable” to expect further rate cuts in coming months but noted that other policy tools could also be employed to boost employment. Data published before the RBA decision showed a small drop in retail sales in April.

Looking forward

Eurozone PPI and retail sales data are due Wednesday. In the US, the ADP employment report will offer clues on Friday’s US jobs report. Also Wednesday, the US PMI services index and ISM non-manufacturing index are due for release. Fed Vice Chairman Richard Clarida is scheduled to speak in Chicago at the same conference where Chairman Powell spoke on Tuesday. Later Wednesday, the Fed will release its beige book report on regional economic conditions prepared for discussion at the June 18-19 FOMC meeting.

Global Stock Markets

 

Index

4 June 2019

Daily Change

% Change Daily

North America

 

 

 

United States

Dow

25332.18

512.40

2.1

 

NASDAQ

7527.12

194.10

2.6

 

S&P 500

2803.27

58.82

2.1

Canada

S&P/TSX Comp

16166.24

150.35

0.9

Europe

 

 

 

 

UK

FTSE 100

7214.29

29.49

0.4

France

CAC

5268.26

26.80

0.5

Germany

XETRA DAX

11971.17

178.36

1.5

Italy

MIB

20229.42

355.18

1.8

Spain

Ibex 35

9117.6

94.80

1.1

Sweden

OMX Stockholm 30

1537.31

19.08

1.3

Switzerland

SMI

9597.71

-5.02

-0.1

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6416.73

5.97

0.1

Japan

Nikkei 225

20408.54

-2.34

0.0

 

Topix

1499.09

0.13

0.0

Hong Kong

Hang Seng

26761.52

-132.34

-0.5

S. Korea

Kospi

2066.97

-0.88

0.0

Singapore

STI

3142.37

18.91

0.6

China

Shanghai Comp

2862.28

-27.80

-1.0

Taiwan

TAIEX

10429.12

-70.95

-0.7

India

Sensex 30

40083.54

-184.08

-0.5

*Markets closed

 

 

 

Note: all releases are listed in local time.

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