Skip Header

On 5 February 2019 - Global stocks advance ahead of state of the union address

Anne D Picker

Anne D Picker - Econoday

Service sector PMI surveys show weak conditions in Europe but further strength in the US.

US markets

US stocks advanced further Tuesday ahead of President Trump’s state of the union speech, with reports suggesting that another government shutdown will be avoided for now and confidence also building that trade tensions between the United States and China may be resolved before planned tariff hikes take effect on March 1. The Dow and Nasdaq both gained 0.7 percent, while the S&P finished the day up 0.5 percent.

Disney gained on the day ahead of reporting fiscal first-quarter earnings of US$1.84 per share after the close, above analysts’ expectations of US$1.55 per share. The company reported solid revenue growth for its media and tourist park businesses, helping to offset operating losses associated with introduction of new content-streaming products. 

Survey data indicate that services sector conditions moderated but remained robust in January. The service sector PMI survey’s headline index fell slightly from 54.4 in December to 54.2 in January, resulting in no change to the composite index covering both the manufacturing and services sectors at 54.9. The ISM non-manufacturing report, meanwhile, showed a fall in its headline index from 58.0 in December to 56.7 in January, with respondents reporting slower growth in new orders and new export orders. Nevertheless, both surveys indicate that growth in the sector remains sturdy and consistent with solid and sustainable GDP growth.   

Federal Reserve Chairman Jerome Powell and Vice Chairman Richard Clarida met with President Trump and Treasury Secretary Mnuchin for an “informal dinner” at the White House on Monday evening. A statement released by the Federal Reserve that Chairman Powell’s remarks at this meeting were consistent with his public comments and that he did not discuss his expectations for monetary policy, except to note that policy decisions will be based entirely on non-political analysis of incoming economic information.  

These data reflect observations at 4:00 PM US ET. Gold increased US$0.10 to US$1,319.40 and dated Brent spot crude was down US$0.50 to US$62.01. The US dollar weakened against the pound and, to a lesser extent, the euro, Swiss franc, and the Canadian dollar, was flat against the yen, and advanced slightly against the Australian dollar. The yield on the US Treasury 30 year bond fell 3 basis points to 3.03 percent while the 10 year note fell 2 basis points to 2.70 percent.

European markets

European markets outperformed most other major global indices Tuesday despite weak regional PMI survey data. The FTSE gained 2.0 percent on the day, with big exporters boosted by a drop in the pound, while the CAC and DAX both advanced 1.7 percent. UK energy company BP posted strong gains after reporting better-than-expected fourth-quarter profits. Annual profits for 2018 were boosted by an increase in oil and gas output and higher global energy prices, with the company also predicting annual production to rise again this year and global oil prices to rise from current levels. European banks also provided a boost to regional indices, rebounding from weakness the previous day. 

Service sector PMI reports were the main focus of the European data calendar. Conditions improved but remained subdued in the German services sector in January, with the survey’s composite index picking up moderately, while the French survey showed a sharper contraction in both services sector and aggregate activity. Conditions elsewhere in the regions were slightly better, with the Eurozone PMI survey showing weak but steady activity in the services sector and on a slight fall in the composite index. Overall, the PMI surveys for January indicate a weak start to the year for the Eurozone, with respondents citing the impact of trade tensions, Brexit uncertainty, and political unrest. Forward-looking indicators are also not promising.

The United Kingdom’s service sector PMI survey showed a drop in its headline index from 51.2 in December to 50.1 in January, indicating that conditions were near-stagnant in the sector. Combined with previous survey results for the manufacturing and construction sectors, the composite index fell from 51.5 to 50.3, the second lowest print since December 2012. Brexit uncertainty was widely cited by survey respondents as the main factor weighing on activity and sentiment, with the PMI surveys likely boosting the chances that the Bank of England will leave policy rates on hold at its meeting later in the week.

Asia Pacific Markets

Several Asian markets remained closed Tuesday for lunar new year holidays, including China, Hong Kong, Singapore, Korea, and Taiwan. Japanese markets were little changed on the day, with the Nikkei down 0.2 percent and the Topix up 0.1 percent.

Australia’s share market rallied strongly on Tuesday following the release late Monday of a report to the Australian government into misconduct relating to banks’ consumer lending practices, with the All Ordinaries index gaining 2.0 percent on the day. Major banks all recorded large gains on relief that the report’s proposed changes to bank regulation and practices were not as severe as anticipated, with investors appearing to conclude the changes would have limited impact on profitability in the sector. Mortgage brokers, however, saw sharp declines in response to the report’s recommendation that they should be paid for their services by borrowers rather than receive commissions from lenders. The government has yet to decide which of the report’s recommendations it will seek to legislate.

The Reserve Bank of Australia left policy rates on hold at its Tuesday meeting, in line with expectations, but officials concluded that downside risks to both the global and domestic economy had increased and lowered their growth and inflation forecasts for 2019 and 2020. In particular, officials cited uncertainty about the outlook for household spending and the effect of falling housing prices in some cities. This suggests that their view about the policy outlook may also be more cautious. In recent months, the minutes of the RBA meetings have shown that officials expect the next move in policy rates will be higher, but markets have recently priced in a greater chance of a rate cut later this year.

Looking forward

President Trump will deliver the state of the union address release shortly. With much of the region still out on lunar new year holidays, the Asia data calendar is very light, while data on German manufacturers’ orders will be the main focus in Europe. US trade and productivity data are scheduled for release Wednesday.

Global Stock Markets

 

Index

Feb 5 2019

Daily Change

% Change Daily

North America

United States

Dow

25411.52

172.15

0.7

 

NASDAQ

7402.08

54.54

0.7

 

S&P 500

2737.70

12.83

0.5

Canada

S&P/TSX Comp

15702.69

100.37

0.6

Europe

UK

FTSE 100

7177.37

143.24

2.0

France

CAC

5083.34

83.15

1.7

Germany

XETRA DAX

11367.98

191.40

1.7

Italy

MIB

19833.49

227.89

1.2

Spain

Ibex 35

9092.00

116.80

1.3

Sweden

OMX Stockholm 30

1542.49

15.30

1.0

Switzerland

SMI

9150.56

139.08

1.5

Asia/Pacific

Australia

All Ordinaries

6068.14

105.16

1.8

Japan

Nikkei 225

20844.45

-39.32

-0.2

 

Topix

1582.88

1.55

0.1

Hong Kong

Hang Seng

*

*

*

S. Korea

Kospi

*

*

*

Singapore

STI

*

*

*

China

Shanghai Comp

*

*

*

Taiwan

TAIEX

*

*

*

India

Sensex 30

36616.81

34.07

0.1

* Market closed
Source: Haver Analytics

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.