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On 05 June 2019 - Stocks up on rate cut hopes

Anne D Picker

Anne D Picker - Econoday

Tech shares, utilities lead gains; oil off on global slowdown worry

US markets

US shares rose again Wednesday on follow-through from Tuesday’s gains on hopes for Fed easing, with tech shares rising, and defensive sectors gaining as well, led by utilities. Energy stocks suffered as oil prices sank.

Markets derived support from hopeful rhetoric from US officials on trade, including comments from several US senators suggesting tariffs on Mexican imports are unlikely to take effect. Traders also noted US-China trade talks are reportedly resuming this weekend.

The Dow industrials rose 0.8 percent; the S&P 500 gained 0.8 percent, and the NASDAQ was up 0.6 percent.

Apple rose 1.6 percent as the firm said it has not been targeted by China, and Microsoft rose 2 percent. Other shares doing especially well included Salesforce, up about 5 percent after reporting an earnings beat for the first quarter. Campbell Soup soared 10 percent after it raised its annual earnings forecast. Utilities FirstEnergy and Entergy were among the leaders, both up 3 percent.

Commodities were mostly lower, led by oil, reflecting expectations for a global slowdown, and news of an unexpected large rise in US oil inventories. Energy stocks were off about 2 percent on the oil price weakness.

US data included a surprisingly weak reading from the ADP jobs report, which showed private-sector payrolls rose by only 27,000 in May, well below expectations. The ADP figures point to a weaker US jobs report, due Friday, and a sluggish start to the second quarter.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude was down US$1.38 to $60.64 while gold was US$3.77 higher at $1,329.05. The US dollar rose against the yen, Australian dollar, euro and Swiss franc; it was little changed against other major currencies. The yield on the US Treasury 30-year bond was up 2 basis points to 2.64 percent while the yield on the 10-year note was down 1 basis point to 2.12 percent.

European markets

European shares ended mostly higher Wednesday, as better sentiment linked to hopes for central bank easing was limited by worries about a renewed dispute between Italy and the European Union over Italian debt.

The European STOXX 600 ended up 0.4 percent. The German DAX rose 0.1 percent, the French CAC rose 0.5 percent, and the UK FTSE 100 rose 0.1 percent. Italy’s FTSE-MIB slipped by 0.4 percent.

On the plus side, comments from Fed Chairman Jay Powell Tuesday lifted expectations for Fed rate cuts, which boosted US stocks, and European markets followed suit Wednesday, though defensive sectors like utilities, up 1.5 percent, were the best performers.

On the gloomier side, the European Commission threatened disciplinary action against Italy for breaking EU budget and debt rules, unless Italy acts to reduce its red ink. Italian officials pushed back, and the dispute revived wider worries about stability of the Eurozone. European bank shares weakened on the news; Italian banks were hit hardest, with UniCredit off 3.5 percent, and Banco BPM down 2 percent.

In Eurozone economic news, producer prices unexpectedly fell again in April. Following March's 0.1 percent monthly dip, the PPI slipped a further 0.3 percent to reduce the annual inflation rate from 2.9 percent to 2.6 percent. Eurozone retailers struggled in April. Following an unrevised flat performance in March, volumes fell a marginally smaller than expected 0.4 percent on the month to reduce annual workday adjusted growth from 2.0 percent to 1.5 percent, a 4-month low. Weakness was most apparent in Germany where purchases slumped fully 2.0 percent. Elsewhere the picture was more mixed with Spain (minus 0.4 percent) having a poor month but France (0.4 percent) unwinding the previous period's setback.

Asia Pacific Markets

Most Asian markets posted modest gains Wednesday, following the lead set by US stocks Tuesday. Japanese markets outperformed, with the Nikkei up 1.8 percent on the day and the Topix advancing 2.1 percent. Trade-sensitive firms and major financial institutions were among the strongest performers, with Toyota up 2.5 percent and SoftBank Group up 3.0 percent. Fast Retailing, however, fell 1.0 percent after reporting poor sales at its Uniqlo clothing outlets.

Japanese shares were also supported by a rally in JGBs on speculation the BOJ may be ready to ease policy, along with hopes for a Fed rate cut after Powell’s remarks Tuesday.

Elsewhere in the region, Hong Kong’s Hang Seng index closed up 0.5 percent, Australia’s All Ordinaries index rose 0.4 percent, and the Shanghai Composite index was unchanged.

Australia's GDP increased by 0.4 percent on the quarter in the three months to March, up from an increase of 0.2 percent in the three months to December and matching the consensus forecast. This pick-up in growth reflected a smaller fall in capital expenditure and a stronger contribution form net exports, offset by weaker growth in household and government consumption spending. Year-on-year growth in GDP slowed from 2.3 percent in the three months to December to a ten-year low of 1.8 percent in the three months to March, just above the consensus forecast of 1.7 percent. Ahead of the release of the GDP data, RBA Governor Philip Lowe had noted that officials' decision to lower policy rates at their meeting earlier this week was not in response to an assessment that the economic outlook had deteriorated. He argued that the economic outlook remains "reasonable" and that he expects the economy to strengthen later this year but indicated support for greater spending on infrastructure to help improve employment growth.

PMI survey data published Wednesday showed weaker conditions in the services sector of major Asian economies. The headline index fell slightly from 51.8 in April to 51.7 in May for Japan, fell sharply from 54.5 to 52.7 in China, and dropped from 51.0 to 50.2 in India. When combined with manufacturing PMI survey data published earlier in the week, the composite index fell from 50.8 to 50.7 in Japan, fell from 52.7 to 51.5 in China, and was unchanged at 51.7 in India. Also published today, the aggregate PMI survey for Hong Kong showed a sharp drop in its headline index from 48.4 in April to 46.9 in May, its lowest level since June 2016. This further deterioration in business conditions was widely attributed by respondents to the re-escalation of US-China trade tensions.

Looking forward

Attention Thursday will focus on the ECB monetary policy announcement, and subsequent press conference with ECB President Mario Draghi. On the data front, German manufacturing orders and Eurozone GDP are due. From the US: international trade, jobless claims, and productivity data. From Canada: merchandise trade and Ivey purchasing managers data.

Global Stock Markets

 

Index

5 Jun 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

25539.57

25347.77

0.8

 

NASDAQ

7575.48

7607.35

0.6

 

S&P 500

2826.15

2802.39

0.8

Canada

S&P/TSX Comp

16212.66

16297.46

0.3

Europe

 

 

 

 

UK

FTSE 100

7220.22

7268.95

0.1

France

CAC

5292

5312.69

0.5

Germany

XETRA DAX

11980.81

12027.05

0.1

Italy

MIB

20155.73

20260.98

-0.4

Spain

Ibex 35

9150.5

9191.80

0.4

Sweden

OMX Stockholm 30

1542

1565.12

0.3

Switzerland

SMI

9658.62

9680.87

0.6

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6443.59

6580.39

0.4

Japan

Nikkei 225

20776.1

21260.14

1.8

 

Topix

1530.08

1550.99

2.1

Hong Kong

Hang Seng

26895.44

27390.81

0.5

S. Korea

Kospi

2069.11

2048.83

0.1

Singapore

STI

*

3165.32

*

China

Shanghai Comp

2861.42

2909.91

0.0

Taiwan

TAIEX

10461.62

10312.31

0.3

India

Sensex 30

*

39749.73

*

*Markets closed

 

 

 

Data Source — Haver Analytics

 

 

 

Note: all releases are listed in local time.

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