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On 04 September 2019 - US, Europe rebound on China, UK news; Asia mixed

Anne D Picker

Anne D Picker - Econoday

Risk appetite back; Hong Kong market rebounds on concession to protesters.

US markets

US equities recovered Wednesday as the global macro picture brightened, with hopes for easing tensions in Hong Kong and diminished prospects for a hard UK Brexit. The Dow industrials rose 0.9 percent, the S&P 500 gained 1.1 percent, and the NASDAQ was up 1.3 percent.

Hong Kong markets soared on news Hong Kong’s leader Carrie Lam withdrew the China extradition law that triggered mass protests. Reports of new Chinese stimulus, including a cut in bank reserve requirements, added to the better risk sentiment, along with an upbeat Chinese service sector purchasing managers report. In the UK, sterling rallied on news that Parliament had stalled Prime Minister Boris Johnson’s push for a no-deal Brexit on Oct. 31. Meanwhile, mixed comments from Federal Reserve officials left the impression a minimum 25 basis point rate cut is still coming in September.

Tech stocks were the best performers, led by semiconductors, with memory chip maker Micron Technology rising 4.1 percent and Qualcomm up 2.6 percent. Micron and other US chip makers have especially heavy exposure to Chinese telecom Huawei and are regarded as trade war bellwethers. Energy stocks were another leader on the China news and as oil prices rose. Exploration and production leader Apache was up 2.9 percent. On the downside, consumer discretionary stocks lagged, with coffee seller Starbucks off 0.7 percent after it warned on its 2020 profits. Tyson Foods, the chicken king maker, dropped 7.7 percent after cutting its earnings forecast.

In economic news, the July US trade deficit came in at $54.0 billion, down from June's $55.5 billion but still marginally over the $53.9 billion monthly average of the second quarter. This comparison gets net exports off to a slow start for third-quarter GDP. From Canada, there were no changes to key interest rates at the Bank of Canada’s September meeting. The bank noted in its statement that as the U.S-China trade conflict has escalated, world trade has contracted and business investment weakened, weighing on global economic momentum more heavily than projected in the July Monetary Policy report.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude oil rose US$2.45 to US$60.77, while gold rose US$8.50 to US$1,563.70. The US dollar fell against most major currencies. The US Treasury 30-year bond yield was up one basis point at 1.96 percent while the 10-year note yield was unchanged at 1.46 percent.

European markets

Italian equities outperformed to lead European markets higher Wednesday on market-friendly news from Italy, the UK, and Hong Kong. The Europe-wide STOXX 600 rose 0.9 percent, the German DAX gained 1.0 percent, and the French CAC rose 1.2 percent. The UK FTSE-100 gained 0.6 percent. Italy’s FTSE MIB index rallied 1.6 percent.

In Italy, Five Star party members ended the latest political crisis by voting to endorse the formation of a coalition government.  The new government is scheduled to take office on Thursday. On the Brexit front, concerns about a hard Brexit eased slightly, and sterling recovered, after news suggesting movement in Parliament toward a three-month extension. From Hong Kong, markets were relieved that Chief Executive Carrie Lam has formally withdrawn the China extradition bill that triggered mass protests months ago. It is unclear whether the protests will diminish as a result, as the protesters’ demands have multiplied.

Outperforming sectors in the Stoxx 600 included trade-sensitive basic resources, autos & parts, industrial services, and oil & gas. Underperformers included health care, telecom, media, and real estate. Among companies in focus, banks with Hong Kong exposure rebounded, with HSBC soaring by 10.4 percent. Shares of luxury goods makers outperformed on the Hong Kong news, with LVMH up 12 percent and Gucci owner Kering up 15 percent.

In economic news, Eurozone retail sales were weak in July but a 0.6 percent monthly drop that matched market expectations reversed only half of June's upwardly revised gain. Annual growth slowed from 2.8 percent to 2.2 percent, still the second best reading since February. Meanwhile, business activity in UK services cooled somewhat in August. At 50.6, the sector PMI was 0.8 points below its July outturn, short of market expectations and ominously close to the 50-expansion threshold. From Germany, private sector business activity remained on an upswing in August according to the final PMI results. However, growth was again sluggish and at a revised 51.7, up 0.3 point versus its flash estimate and 0.8 points higher than its final July print, the final composite output reading was still disappointingly close to the 50-expansion threshold.

Asia Pacific markets

Major Asian markets posted mixed and in some cases large moves Wednesday, with investor sentiment impacted during the trading session by a busy regional data calendar and initial reports that Hong Kong Chief Executive Carrie Lam would withdraw the controversial extradition legislation that has been the major factor driving civil unrest in recent months. Hong Kong’s Hang Seng index surged 3.9 percent higher on these reports, with the reports confirmed after the close of trading. The Shanghai Composite index also posted a solid gain, up 0.9 percent on the day, after PMI survey data showed an improvement in service sector conditions. Australia’s All Ordinaries index was among the weaker regional performers, dropping 0.3 percent after GDP data showed slower growth, while Japan’s Nikkei and Topix indices rose 0.1 percent and fell 0.3 percent respectively.

Markit PMI surveys were the main focus of the Asian data calendar Wednesday. The survey for the Chinese services sector showed stronger conditions in August after the equivalent survey for the manufacturing sector published earlier in the week also showed some improvement. Together these surveys suggest that recent policy measures aimed at offsetting the impact of US-China trade tensions may have provided some support to domestic activity. The survey for the Indian services sector, however, showed weaker conditions in August, again in line with the equivalent survey for the Indian manufacturing sector earlier in the week.

The impact of global trade tensions and weaker external demand were evident in PMI surveys for the Hong Kong and Singapore economy, with civil unrest in Hong Kong also having a clear impact. The headline index for the Hong Kong survey, having already indicated contraction in the domestic economy for well over the year, fell very sharply for the second consecutive month to its lowest level since February 2009. The headline index for the Singapore survey also fell to its lowest level in seven years and indicates a contraction in the private sector economy for the first time since February, with respondents citing weak demand from Europe, China and Hong Kong.

Australia's GDP increased by 0.5 percent on the quarter in the three months to June, unchanged from the revised increase of 0.5 percent in the three months to March and matching the consensus forecast. Year-on-year growth in GDP slowed from a revised 1.7 percent in the three months to March to a 10-year low of 1.4 percent in the three months to June, also matching the consensus forecast. Growth in household consumption and government spending were somewhat stronger, while net exports made a bigger contribution to headline growth, offset by a bigger fall in investment spending.

Looking forward

On Thursday in Asia/Pacific, the Australian merchandise trade report is due. In Europe, German manufacturers' orders and Swiss GDP are due. Data to be released in North America include ADP employment, ISM non-manufacturing, and factory orders.

Global stock markets

 

Index

4 Sep 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26355.47

237.45

0.9

 

NASDAQ

7976.88

102.72

1.3

 

S&P 500

2937.78

31.51

1.1

Canada

S&P/TSX Comp

16448.84

49.61

0.3

Europe

 

 

 

 

UK

FTSE 100

7311.26

43.07

0.6

France

CAC

5532.07

66.00

1.2

Germany

XETRA DAX

12025.04

114.18

1.0

Italy

MIB

21737.8

338.57

1.6

Spain

Ibex 35

8856.6

47.40

0.5

Sweden

OMX Stockholm 30

1581.28

12.62

0.8

Switzerland

SMI

9894.6

41.90

0.4

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6656.12

-17.42

-0.3

Japan

Nikkei 225

20649.14

23.98

0.1

 

Topix

1506.81

-3.98

-0.3

Hong Kong

Hang Seng

26523.23

995.38

3.8

S. Korea

Kospi

1988.53

22.84

1.2

Singapore

STI

3130.57

39.94

1.3

China

Shanghai Comp

2957.41

27.26

0.9

Taiwan

TAIEX

10657.31

99.10

0.9

India

Sensex 30

36724.74

161.83

0.4

Note: all releases are listed in local time.

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