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On 02 August 2019 - US, Europe, Asia stocks off as Trump resumes trade war

Anne D Picker

Anne D Picker - Econoday

Bond yields fall and the Yen and Swiss franc rally on flight from risk.

US markets

US stocks extended a global selloff Friday on fallout from President Trump’s abrupt resumption of the US-China trade war, though major US indexes were ending above their worst levels of the day. The Dow industrials fell 0.4 percent, the S&P 500 declined 0.8 percent, and the NASDAQ fell 1.3 percent.

Trump said on Thursday he would impose 10 percent tariffs on the final $300 billion segment of Chinese imports, effective Sept. 1, but that he could do more, or less, depending on how bilateral trade talks unfold. The trade story dominated the market’s attention and swamped the positive effect of a decent quarterly earnings season and the latest economic data, including an in-line showing in the latest US jobs report, with nonfarm payrolls up 164,000, at the upper end of expectations.

Among sectors, cyclical plays underperformed, while defensive sectors, especially utilities and real estate, did better. Tech fared the worst, with hardware off on a negative preannouncement by NetApp (down 20 percent) after the storage and data company said its sales and earnings would be below expectations due to a global slowing in hardware spending. Cisco, another network hardware company, was off 3.9 percent. Chip stocks were big losers, with Advanced Micro Devices off 1.3 percent and breaking below key trendlines. Chipmaker Qualcomm was off again Friday, down 0.1 percent, after dropping Thursday on poor earnings due to the Huawei fiasco. The FAANGs were off on the risk-off move, with Apple and Amazon both down about 2 percent.

Energy and materials were both notable decliners, while autos, toys, and travel stocks led consumer discretionary stocks down. Square Inc., a digital payments company, was a notable loser, down 14 percent, as its third-quarter forecast was way below expectations. Engineering firm Fluor plunged by a whopping 27 percent after an unexpected quarterly loss and downgrade to its guidance.

With more than 75 percent of S&P 500 companies now reporting FactSet put earnings growth at minus 1.0 percent, better than the expected minus 2.7 percent. FactSet said nearly 75 percent have exceeded expectations, just below the 76 percent average.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude rose 36 cents to US$61.40 while gold fell US$1.40 to US$1453.10. The US dollar dropped against major currencies, as measured by the ICE dollar index contract, DXY. The yield on the US Treasury 30-year bond yield dropped 5 basis points to 2.39 percent while the yield on the 10-year note fell 4 basis points to 1.85 percent.

In US economic news, July nonfarm payrolls rose 164,000, above Econoday's consensus for 151,000. But much of the strength came for a second month from government payrolls, which rose 16,000. Private payrolls rose 148,000, which, in contrast to the nonfarm headline, is 12,000 under Econoday's consensus. Manufacturing hours fell to 40.4 hours from 40.7 in June, with manufacturing overtime also down, at 3.2 hours from 3.4 hours. These inputs into the manufacturing component of the July industrial production report point to a quick reversal from June's strength. Average hourly earnings rose 0.3 percent, which is at the top of Econoday's consensus range, while June's rise was revised 1 tenth higher and now also stands at 0.3 percent.

European markets

European equities markets dropped Friday as markets reacted to President Trump’s move to impose 10 percent tariffs on $300 billion in Chinese exports to the US. Fixed-income markets rallied, with the German 29-year bund yield going negative for the first time, while the Swiss franc and gold surged on a flight to quality. Markets see a rising likelihood of a no-deal Brexit, another negative for risk assets.

The Europe-wide STOXX 600 dropped 2.5 percent, the German DAX dropped 3.2 percent, the French CAC fell 3.7 percent, and the UK FTSE 100 was down 2.4 percent.

Cyclical stocks, and shares with the most exposure to trade, led the declines, while defensive shares including real estate, health care, and utilities outperformed, but were generally caught in the downdraft. Worst-hit sectors included basic resources, technology, and autos and parts. Among shares in focus, two Italian auto sector icons downgraded their guidance: tire maker Pirelli dropped 7 percent, while luxury carmaker Ferrari fell 4 percent. One of the biggest losers was Robit PLC, a UK mining driller, off 19 percent after cutting its 2019 guidance. Dutch professional services company Brunel dropped 16 percent after reducing its guidance too. Royal Bank of Scotland fell 6.5 percent after cutting its dividend.

In economic news, Eurozone producer prices (ex-construction) fell for a fourth consecutive month in June. A 0.6 percent decline was the steepest over the period and sharper than market expectations. As a result, annual PPI inflation dropped from 1.6 percent to just 0.7 percent, its lowest mark since November 2016. Meanwhile, UK construction had another very poor month in July. The sector PMI weighed in at just 45.3, up from 43.1 in June but below market expectations and still solidly in negative growth territory.

Asia Pacific Markets

Most major Asian market posted heavy falls Friday after President Trump announced higher tariffs would be imposed on Chinese goods starting next month. These declines extended losses on the week. In response to President Trump’s tariff decision, Chinese officials warned they would take countermeasures but expressed hope that negotiations could resume. Meanwhile, trade tensions between Japan and South Korea showed no sign of resolution Friday with Korean officials indicating that retaliatory measures could be introduced in response to recent and prospective export restrictions imposed by Japan.

Hong Kong’s Hang Seng index was among the weakest regional performers Friday, closing down 2.4 percent on the day and down 5.2 percent on the week, with the impact of external developments on investor sentiment augmented by concerns about ongoing civil unrest. Japanese shares also weakened sharply Friday after receiving some support from currency weakness Thursday. The Nikkei index fell 2.2 percent on the day and 2.6 percent on the week, while the Topix index dropped 2.2 percent on the day and 2.4 percent on the week. The Shanghai Composite index also extended losses Friday, down 1.4 percent on the day and 2.6 percent on the week. Australia’s All Ordinaries index outperformed with more modest losses of 0.4 percent on the day and 0.5 percent on the week, though the impact of global trade tensions was evident on the Australian dollar, which weakened to levels not seen since 2008.

Australian retail sales and producer price data were the main focus of the regional data calendar Friday. Retail sales increased 0.4 percent on the month (seasonally adjusted) in June after advancing 0.1 percent in May, mainly reflecting stronger growth in sales of food and clothing. Producer price inflation rose slightly from 1.9 percent in the three months to 2.0 percent in the three months to June after consumer price data earlier in the week showed a slightly bigger rise in headline inflation from 1.3 percent to 1.6 percent.

Looking forward

Central Bank activities

 

Aug-06

Australia

Reserve Bank of Australia interest rate decision

Aug-07

India

Reserve Bank of India monetary policy statement

 

New Zealand

Reserve Bank of New Zealand interest rate announcement

The following indicators will be released this week...

Europe

 

 

Aug-05

Eurozone

PMI Conposite (July)

 

Germany

PMI Conposite (July)

 

Switzerland

SECO Consumer Climate (July)

Aug-06

Germany

Manufacturers Orders (June)

 

UK

Halifax HPI (July)

Aug-07

France

Merchandise Trade (June)

 

Germany

Industrial Production (June)

Aug-09

France

Industrial Production (June)

 

Germany

Merchandise Trade (June)

 

Italy

CPI (July)

 

UK

GDP (Q2 P)

   

Industrial Production (June)

 

 

Monthly GDP (June)

Asia Pacific

 

 

Aug-05

China

General Services PMI (July)

 

Japan

PMI Composite (July)

 

Singapore

PMI (July)

Aug-06

Australia

Merchandise Trade (May)

 

Japan

Household Spending (June)

 

New Zealand

Labor Market (Q2)

Aug-08

China

Merchandise Trade (July)

Aug-09

China

CPI (July)

 

 

PPI (July)

 

Japan

GDP (Q2 A)

Americas

 

 

Aug-05

US

ISM Non-Mfg Index (July)

Aug-06

US

JOLTS (June)

Aug-07

Canada

Ivey PMI (July)

Aug-08

US

Jobless Claims (Week of Aug. 3)

Aug-09

Canada

Housing Starts (July)

 

 

Labor Force Survey (July)

 

US

PPI-FD (July)

Global Stock Markets

 

Index

2 Aug 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26485.01

-98.41

-0.4

 

NASDAQ

8004.07

-107.05

-1.3

 

S&P 500

2931.71

-22.34

-0.8

Canada

S&P/TSX Comp

16258.87

-114.37

-0.7

Europe

 

 

 

 

UK

FTSE 100

7407.06

-177.81

-2.4

France

CAC

5359

-198.41

-3.7

Germany

XETRA DAX

11872.44

-380.71

-3.2

Italy

MIB

21046.86

-520.05

-2.5

Spain

Ibex 35

8897.6

-140.60

-1.6

Sweden

OMX Stockholm 30

1568.7

-44.21

-2.8

Switzerland

SMI

9803.69

-115.58

-1.2

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6846.06

-25.88

-0.4

Japan

Nikkei 225

21087.16

-453.83

-2.2

 

Topix

1533.46

-33.89

-2.2

Hong Kong

Hang Seng

26918.58

-647.12

-2.4

S. Korea

Kospi

1998.13

-19.21

-1.0

Singapore

STI

3261.11

-30.64

-0.9

China

Shanghai Comp

2867.84

-40.93

-1.4

Taiwan

TAIEX

10549.04

-182.71

-1.7

India

Sensex 30

37118.22

99.90

0.3

Note: all releases are listed in local time.

Important Information

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.