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On 05 September 2019 - US, Europe, Asia rally as US-China trade talks to resume

Anne D Picker

Anne D Picker - Econoday

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

US markets

US equities rallied while US Treasuries retreated Thursday in a risk-on move powered by headlines pointing to resumption of US-China trade talks, including face-to-face negotiations in Washington, D.C., in early October. The Dow industrials gained 1.4 percent, the S&P 500 rose 1.3 percent, and the NASDAQ jumped 1.8 percent.

Upbeat US economic data contributed to the better mood, including  an unexpectedly strong US non-manufacturing purchasing managers’ report, and better US ADP jobs data that raised expectations ahead of the US employment report due Friday.

ISM's non-manufacturing index easily beat expectations in August at 56.4, up from 53.7 in July. New orders are the big news in the report, jumping more than six points to 60.3. And these orders were helping August's business activity index (akin to a production index in manufacturing), which rose more than eight points to 61.5.  Meanwhile, ADP estimates private payrolls in Friday's employment report for August will rise a stronger-than-expected 195,000. Econoday's consensus for this estimate was 150,000.

Among sectors in the S&P 500, banks, industrials, energy and tech were the leaders Thursday, with defensive stocks including utilities and real estate weaker. Among stocks in the news, cybersecurity company Palo Alto Networks gained 5.9 percent after raising its profits guidance and announcing it would acquire security company Zingbox. Slack Technologies, a software company, fell 3.4 percent after a quarterly earnings miss.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude oil rose four cents to US$60.81, while gold plunged by US$37.40 to US$1,526.30. The US dollar fell against most major currencies. The US Treasury 30-year bond yield was up nine basis points at 2.06 percent while the 10-year note yield was up 10 basis points at 1.56 percent.

European markets

Most European markets advanced Thursday on better US-China trade news, but UK markets weakened as sterling rose on the latest Brexit machinations. The Europe-wide STOXX 600 rose 0.7 percent, the German DAX was up 0.9 percent, and the French CAC gained 1.1 percent as French aerospace firms reporting favorable results. The UK FTSE-100 was off 0.6 percent.

Chinese officials said US-China trade consultations would resume in mid-September, and high-level negotiations would resume in October. In Brexit news, opposition parties appear likely to force Prime Minister Boris Johnson to delay Brexit, and hold elections after the Oct. 31 Brexit deadline has past. Sterling rose on the news, weakening the export-heavy FTSE 100.

Outperforming sectors in the Stoxx 600 included autos & parts, technology, banks, and oil & gas. Underperformers included health care, food & beverage, and utilities. Among companies in focus, France’s jet manufacturer Dassault Aviation rose 5.7 percent after affirming its 2019 forecast, and French aerospace manufacturer Safran rose 5 percent after raising its guidance. UK pharma giants AstraZeneca, down2.7 percent, and GlaxoSmithKline, down 2.5 percent, were hit by worries about sterling’s impact on their dollar-based earnings.

In economic news, Swiss economic growth slowed, but by less than expected in the second quarter. Total output expanded 0.3 percent on the quarter, a tick short of the first quarter's revised rate. As a result, annual growth declined from 1.0 percent to just 0.2 percent. Separately, German manufacturing orders dropped 2.7 percent in July, much worse than expectations, to reverse an upwardly revised 2.7 percent rise in June. Annual growth dropped from minus 3.5 percent to minus 5.3 percent, one of the worst readings in recent years.

Asia Pacific markets

Most major Asian markets closed higher Thursday after news US and Chinese officials will hold trade talks in Washington in early October. A statement published by the Chinese Ministry of Commerce advised that Vice Premier Liu He, People’s Bank of China Governor Yi Gang and other senior Chinese officials had spoken to US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin and agreed to meet next month for further trade negotiations. US officials subsequently confirmed discussions had taken place and that high-level meetings will take place in coming weeks.

The Shanghai Composite index rose 1.0 percent on the day as did Australia’s All Ordinaries index, while Japan’s Nikkei and Topix indices outperformed with gains of 2.1 percent and 1.8 percent respectively. Hong Kong’s Hang Seng index was the major exception, closing flat on the day. This followed a strong 3.9 percent gain Wednesday ahead of Chief Executive Carrie Lam’s announcement that the government will withdraw the controversial extradition legislation that has been the major factor driving civil unrest in recent months.

Australia's trade surplus narrowed from a revised A$7.977 billion in June to A$7.268 billion in July, below the consensus forecast for a surplus of A$7.4 billion. Exports rose 0.6 percent on the month in July, down from growth of 1.4 percent in June, with weaker growth in exports of non-rural goods partly offset by stronger growth in exports of services and rural goods. Imports rose 2.9 percent on the month in July, rebounding from a decline of 3.5 percent in June.

Looking forward

On Friday the big event is Fed Chair Jay Powell speaking at 12:30 ET in Zurich. In economic data for Asia, the Japanese household spending report is scheduled. In Europe, the following are due: Eurozone GDP, French merchandise trade, German industrial production, Italian retail sales, and the UK Halifax home prices. In North America, these Canadian data releases are due: Ivey Purchasing Managers Index and labor force survey. For the US, the employment situation report is the only major release.

Global stock markets

 

Index

5 Sep 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26728.15

372.68

1.4

 

NASDAQ

8116.83

139.95

1.8

 

S&P 500

2976

38.22

1.3

Canada

S&P/TSX Comp

16574.81

125.97

0.8

Europe

 

 

 

 

UK

FTSE 100

7271.17

-40.09

-0.6

France

CAC

5593.37

61.30

1.1

Germany

XETRA DAX

12126.78

101.74

0.9

Italy

MIB

21955.07

217.27

1.0

Spain

Ibex 35

8992.7

136.10

1.5

Sweden

OMX Stockholm 30

1597.34

16.06

1.0

Switzerland

SMI

9983.07

88.47

0.9

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6720.75

64.63

1.0

Japan

Nikkei 225

21085.94

436.80

2.1

 

Topix

1534.46

27.65

1.8

Hong Kong

Hang Seng

26515.53

-7.70

0.0

S. Korea

Kospi

2004.75

16.22

0.8

Singapore

STI

3147.06

16.49

0.5

China

Shanghai Comp

2985.87

28.46

1.0

Taiwan

TAIEX

10756.93

99.62

0.9

India

Sensex 30

36644.42

-80.32

-0.2

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.