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On 7 March 2019 - Global stocks decline and US dollar advances as ECB downgrades outlook

Anne D Picker

Anne D Picker - Econoday

US data shows a fall in jobless claims ahead of February employment report.

US markets

US stocks extended losses Thursday. The Dow and the S&P both fell 0.8 percent on the day, while the Nasdaq underperformed again with a drop of 1.1 percent. Supermarket chain Kroger fell heavily after reporting weak sales and earnings per share of US$0.48 for the quarter ending February 2, below analysts’ forecast of US$0.52.

Labour market indicators were the main focus of the US data calendar Thursday ahead of Friday’s payrolls report. Jobless claims data showed a small fall for the March 2 week with the 4-week average also dropping, but the Challenger Job-Cut Report showed a strong increase in layoff announcements in February, representing a downside risk for upcoming employment reports. Data for the three months to December showed productivity grew 1.9 percent on the quarter while unit labour costs rose 2.0 percent. 

Federal Reserve Governor Lael Brainard spoke Thursday and her comments were broadly in line with previous Fed statements. Citing downside risks to the outlook, including external factors such as the slowdown in the Chinese economy and Brexit uncertainty, she argued that “watchful waiting” is the appropriate position for officials to take in upcoming policy meetings. Governor Brainard also said, in line with other officials, that she expects the reduction in the Federal Reserve’s balance sheet to finish by the end of the year.

These data reflect observations at 4:00 PM US ET. Gold fell US$1.60 to US$1,286.00 while dated Brent spot crude advanced US$0.12 to US$66.11. The US dollar posted strong gains against the euro, the pound and the Swiss franc, with more moderate increases against the Australian dollar, the Canadian dollar, and the yuan, but fell slightly against the yen. The yield on the US Treasury 30 year bond fell 3 basis points to 3.03 percent while the 10 year note dropped 5 basis points to 2.64 percent.

European markets

European markets closed lower Thursday after the European Central Bank revised its growth and inflation forecasts lower and indicated policy will remain loose for longer than previously indicated. The FTSE dropped 0.5 percent, the CAC fell 0.4 percent, and the DAX fell 0.6 percent.

The euro fell sharply Thursday after the ECB left policy rates on hold at its meeting, in line with expectations, but adjusted its forward guidance in response to the recent slowdown in the Eurozone economy. ECB President Mario Draghi described the current period as one of “continued weakness and pervasive uncertainty”. Reflecting this assessment, officials have extended the period in which they expect to see rates remain at present levels from mid-year until “at least through the end of 2019” with this also implying that the ECB’s asset purchase program will also provide additional monetary accommodation. With previously-made cheap loans to regional banks set to mature in coming months, official also announced a new round for this program, the targeted longer-term refinancing operation (TLTRO), as part of efforts to ensure the supply of new loans to businesses and households. 

These measures reflect a significant downgrade to the ECB’s assessment of economic prospects. Eurozone real GDP is now expected to increase by 1.1 percent in 2019, down from the forecast of 1.7 percent made in December, with the 2020 growth forecast lowered from 1.7 percent to 1.6 percent and the 2021 forecast unchanged at 1.5 percent.  Inflation forecasts have also been reduced from 1.6 percent to 1.2 percent for 2019, from 1.7 percent to 1.5 percent for 2020, and from 1.8 percent to 1.6 percent in 2021. Despite these changes, officials still see the risks to these forecasts as skewed to the downside.

Shortly before the ECB policy decision, revised Eurozone GDP data showed that output rose 0.2 percent on the quarter in the three months to December, up from 0.1 percent in the three months to September, with year-on-year growth falling from 1.6 percent to 1.1 percent, the weakest rate since late 2013. Household spending was slightly stronger but still subdued, business investment firm and steady, and net exports made a modest contribution to headline growth. Other data released Wednesday showed a rebound in Italian retail sales in January, a small fall in Swiss unemployment in February, and a remarkably strong increase in the United Kingdom’s Halifax House Price Index in February.

Asia Pacific Markets

Most Asian markets closed lower or only moderately higher Thursday. Hong Kong’s Hang Seng index underperformed, down 0.9 percent on the day, while Japan’s Nikkei and Topix indices were down 0.7 percent and 0.8 percent respectively and shares also fell in Korea and Taiwan.  Australia’s All Ordinaries index rose 0.3 percent and the Shanghai Composite index gained 0.1 percent.

Australian trade data showed an increase in the trade surplus from revised A$3.769 billion in December to A$4.549 billion in January, the biggest surplus since December 2016. Exports increased 5.0 percent on the month after falling 1.1 percent previously, with slower growth in rural exports offset by stronger growth in exports of non-rural goods and services, as well as a sharp increase in non-monetary gold exports, a small but sometimes volatile category. Imports grew 3.3 percent on the month after falling a revised 5.5 percent previously, with all major categories rebounding after they had fallen in December.

Australian retail sales data showed a modest increase of 0.1 percent in January after a fall of 0.4 percent in December. Results were mixed across the major categories of spending, but headline growth was supported by increases in the two most populous states, New South Wales and Victoria.

Looking forward

Japanese household spending and GDP data will be released shortly, followed by Chinese trade data. The European data calendar is busy, with French industrial production and trade data, German manufacturers’ orders, and Italian industrial production and producer price inflation data all scheduled for release. This will be followed by housing starts and employment data in both the United States and Canada.

Global Stock Markets

 

Index

Mar 7 2019

Daily Change

% Change Daily

North America

United States

Dow

25473.23

-200.23

-0.8

 

NASDAQ

7421.46

-84.46

-1.1

 

S&P 500

2748.93

-22.52

-0.8

Canada

S&P/TSX Comp

16056.51

-35.56

-0.2

Europe

UK

FTSE 100

7157.55

-38.45

-0.5

France

CAC

5267.92

-20.89

-0.4

Germany

XETRA DAX

11517.80

-69.83

-0.6

Italy

MIB

20697.56

-154.00

-0.7

Spain

Ibex 35

9249.90

-46.80

-0.5

Sweden

OMX Stockholm 30

1558.91

-13.72

-0.9

Switzerland

SMI

9324.58

-78.58

-0.8

Asia/Pacific

Australia

All Ordinaries

6344.21

17.45

0.3

Japan

Nikkei 225

21456.01

-140.80

-0.7

 

Topix

1601.66

-13.59

-0.8

Hong Kong

Hang Seng

28779.45

-258.15

-0.9

S. Korea

Kospi

2165.79

-9.81

-0.5

Singapore

STI

3229.48

6.64

0.2

China

Shanghai Comp

3106.42

4.32

0.1

Taiwan

TAIEX

10311.68

-45.47

-0.4

India

Sensex 30

36725.42

89.32

0.2

*Markets closed
Source: Haver Analytics

Note: all releases are listed in local time.

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