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On 05 July 2019 - US, Europe off as jobs data hit Fed easing hopes; Asia mostly flat

Anne D Picker

Anne D Picker - Econoday

US bond yields, dollar rise as market pushes back rate cut expectation.

US markets

US stocks slipped, but closed up from their worst levels Friday, while bond yields rose, as traders scaled back expectations for aggressive Federal Reserve rate cuts after US jobs data surprised on the upside. 

The Dow industrials fell 0.2 percent; the S&P fell 0.2 percent, and the NASDAQ eased 0.1 percent. Markets remained at lofty levels after recent gains on expected progress on the US-China trade war and hopes for global rate cuts.

Bank stocks outperformed Friday on expectations for more stable US interest rates, with Bank America up 0.9 percent and Citigroup up 0.8 percent. Defensive shares such as health care and real estate under-performed, as rising US bond yields undercut their appeal. Chipmakers were hurt by fallout from a gloomy forecast from Korean industry heavyweight Samsung Electronics.

Oil prices rose on worries about conflict between Iran and the West, and news of an OPEC-Russia accord on output. The dollar rose on the revised US interest rate outlook.

In US economic data, nonfarm payrolls shot 224,000 higher in June and well beyond Econoday's consensus range where the high forecast was 205,000. There are no flukes in this report underscored by a 17,000 jump for what has been an uneven manufacturing sector that Federal Reserve policy makers are watching with concern. Payrolls at professional & business services jumped 51,000 as employers scramble to meet demand with contractors. Government payrolls, up 33,000, were also a large contributor to June's growth.

The unemployment rate edged higher to 3.7 percent but reflected not weakening for the labor force but strengthening as newcomers are looking for jobs. The participation rate rose 1 tenth to 62.9 percent to also beat out expectations. Wage news shouldn't be alarming for Fed policy makers. A 0.2 percent monthly gain, which missed expectations, is offset at least in part by an upward revision to May, which now stands at 0.3 percent. 

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude rose 96 cents to US$64.26 while gold fell US$17.01 to $1400.69. The US dollar rose against most major currencies. The yield on the US Treasury 30-year bond yield jumped 7 basis points to 2.54 percent while the yield on the 10-year note rose 9 basis points at 2.04 percent.

European markets

European equities retreated Friday as unexpected strength in US jobs data obliged traders to scale back expectations for near-term US rate cuts.

The European STOXX 600 fell 0.7 percent, the German DAX fell 0.5 percent, the French CAC fell 0.5 percent, and the UK FTSE 100 fell 0.7 percent.  Italy’s FT-MIB fell 0.6 percent.

Industrial shares were hit by news of weak German manufacturers’ orders, with Siemens off 2.8 percent and Sandvik off 5 percent. Hexagon, a Swedish industrial firm, dropped 11.6 percent after announcing layoffs and disappointing quarterly results.  

UK shares were hurt by a selloff in homebuilders after SIG, a building supplier, (down 5.3 percent) reported weak results.

In economic news, German manufacturers’ orders were much weaker than expected, tumbling fully 2.2 percent in May, against which a minimally stronger revised 0.4 percent rise in April made little difference. Annual growth nosedived from minus 4.9 percent to minus 8.7 percent, its worst reading in almost a decade.

Asia Pacific Markets

Asia Pacific markets ended mostly flat Friday in hesitant trading ahead of US jobs data later in the day, but equities were holding onto recent gains scored on hopes for a US-China trade deal. Australia outperformed on ongoing response to the Reserve Bank of Australia’s policy easing.

China’s Shanghai Composite edged up 0.2 percent, amid uncertainty about the next step in US-China trade talks, which are expected to resume next week. Hong Kong’s Hang Seng index eased by 0.1 percent in cautious trade. Japan’s Nikkei index rose 0.2 percent, and was up 2.2 percent for the week.

The Singapore Straits Times index was down 0.1 percent, but still managed a sixth consecutive week of gains.

Australia’s All Ordinaries index rose 0.5 percent, paced by banks and real estate stocks. Commonwealth Bank of Australia rose 0.9 percent to lead the way with help from news that Australia’s bank regulator eased mortgage lending rules again. Mining stocks weakened on profit-taking following recent advances.

Korea’s KOSPI was flat, with index heavy-weight Samsung Electronics down 0.8 percent and LG Electronics off 5.2 percent after gloomy profits forecasts, which reflected US-China trade woes. The negative tech news contributed to risk-off sentiment during the Asian hours.

India’s BSE Sensex index fell 1.0 percent despite market expectations of fiscal stimulus soon from the Modi government to offset recent slow growth.

In economic news, household spending in Japan, in real terms, increased 4.0 percent on the year in May after advancing 1.3 percent in April. Spending, in seasonally adjusted real terms, rose 5.5 percent on the month, rebounding strongly from a drop of 1.4 percent previously and well above the consensus forecast for an increase of 1.4 percent. The increase in headline year-on-year growth in May was largely driven by rebounds in spending on housing, up 6.7 percent on the year after dropping 10.5 percent previously, and utilities, up 6.9 percent after falling 3.2 percent.

Looking forward

Central Bank activities

Jul-10

Canada

Bank of Canada Monetary Policy Announcement and Report

 

US

Fed Chair Jerome Powell delivers monetary policy report to Congress

 

 

FOMC Minutes

Jul-11

Eurozone

ECB Minutes

The following indicators will be released this week...

Europe

 

 

Jul-08

Germany

Industrial Production (May)

 

 

Merchandise Trade (May)

Jul-09

Italy

Retail Sales (May)

Jul-10

France

Industrial Production (May)

 

Italy

Industrial Production (May)

 

UK

Industrial Production (May)

 

 

Monthly GDP (May)

Jul-11

France

CPI (June)

 

Germany

CPI (June)

Jul-12

Eurozone

Industrial Production (May)

Asia Pacific

 

 

Jul-08

Japan

Machine Orders (May)

Jul-10

China

CPI (June)

 

 

PPI (June)

 

Japan

PPI (June)

Jul-11

Japan

Tertiary Index (May)

Jul-12

China

Merchandise Trade (June)

 

India

Industrial Production (May)

Americas

 

 

Jul-10

Canada

Housing Starts (June)

Jul-11

US

CPI (June)

 

 

Jobless Claims

 

 

US Treasury Budget (June)

Jul-12

US

PPI-FD (June)

Global Stock Markets

 

Index

5 Jul 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26922.12

*

*

 

NASDAQ

8161.79

*

*

 

S&P 500

2990.41

*

*

Canada

S&P/TSX Comp

16541.99

-46.86

-0.3

Europe

 

 

 

 

UK

FTSE 100

7553.14

-50.44

-0.7

France

CAC

5593.72

-27.01

-0.5

Germany

XETRA DAX

12568.53

-61.37

-0.5

Italy

MIB

21985.79

-134.91

-0.6

Spain

Ibex 35

9335

-66.00

-0.7

Sweden

OMX Stockholm 30

1634.94

-17.31

-1.0

Switzerland

SMI

9980.22

-86.26

-0.9

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6831.76

30.90

0.5

Japan

Nikkei 225

21746.38

43.93

0.2

 

Topix

1592.58

2.80

0.2

Hong Kong

Hang Seng

28774.83

-20.94

-0.1

S. Korea

Kospi

2110.59

1.86

0.1

Singapore

STI

3366.81

-5.44

-0.2

China

Shanghai Comp

3011.06

5.81

0.2

Taiwan

TAIEX

10785.73

9.83

0.1

India

Sensex 30

39513.39

-394.67

-1.0

*Markets closed

 

 

 

Data Source – Haver Analytics

 

 

 

Note: all releases are listed in local time.

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