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On 07 August 2019 - US, Europe better, Asia mixed as trade, growth worries linger

Anne D Picker

Anne D Picker - Econoday

Stocks move opposite US Treasuries in uncertain, volatile trading.

US markets

Major US stock indexes recovered late Wednesday to end flat to slightly higher as risk aversion ebbed and US Treasury markets retreated from early highs, but markets continued to focus on recession worries after Asian central banks cut rates overnight. The Dow industrials eased 0.1 percent, the S&P 500 rose 0.1 percent, and the NASDAQ rose 0.4 percent.

Equities markets fell early on Wall Street and Treasury yields dropped, as traders focused on an unexpectedly aggressive 50 basis point rate cut from the Reserve Bank of New Zealand and a steeper-than-expected 35 basis point cut from the Reserve Bank of India as indications of trouble in the global economy. But when bond yields moved back higher in the New York afternoon, and precious metals retreated from their highs, equities recovered as well, though the Dow ended down.

Financials led decliners on the soft interest rate outlook, while energy stocks were hit by falling oil prices. Consumer staples did better, with pharma shares up, along with home and personal care stocks. Gold and silver miners rose with metals prices surging in the flight from risk.

Cyclicals JP Morgan dropped 2.2 percent, 3M was off fractionally, and Caterpillar fell 1.1 percent to weaken the Dow industrials.

Among companies reporting, Walt Disney dropped 4.9 percent after an earnings miss. Drug store CVS advanced 7.5 percent after an earnings beat and it raised its target for its Aetna insurance unit. Microchip Technology rose 3.9 percent after an earnings beat and raising guidance. Match Group jumped 24 percent as its Tinder online dating site outperformed. Fleetcor, an online payments company, rose 8.2 percent as earnings and revenues beat expectations. Guardant Health, a medical testing company, gained 21 percent on a big beat and positive clinical trials.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude fell US$1.57 to US$57.37 while gold rose US$23.00 to US$1507.20. The US dollar was mixed against major currencies. The yield on the US Treasury 30-year bond yield was unchanged at 2.24 percent while the yield on the 10-year note was unchanged at 1.71 percent.

European markets

European equities rose Wednesday with support from corporate deal news, but markets ended well off their highs on a weak Wall Street open, gloom over US-China trade, and worries over a global slowdown. The Europe-wide STOXX 600 rose 0.3 percent, the German DAX gained 0.7 percent, the French CAC gained 0.6 percent, and the UK FTSE 100 rose 0.4 percent.

Among stocks in the Stoxx 600, travel & leisure and media shares outperformed, while basic resources, oil and gas, and banks underperformed. Among financials, Commerzbank was off 7.8 percent, and Italian bank Unicredit fell 6 percent after warning about falling interest rates.  Weak Eurozone economic data has fed the narrative that interest rates are headed lower, and will stay down a long time. Munich Reinsurance rose 0.7 percent on an earnings beat as disaster insurance claims declined from last year.

In deal news, German pharma and life sciences conglomerate Bayer rose 6 percent after unveiling a deal to sell its stake in Currenta, an environmental management unit to Macquarie.

Swiss pharma Novartis fell 2.9 percent amid scandal over data manipulation in its clinical trials. Food retailer Ahold Delhaize fell 1.2 percent on a profits miss it attributed to labor strikes at its stores.

Markets were surprised by aggressive Asian central bank easing Wednesday, and bond yields dropped, along with oil prices, as the actions appeared to signal deep concern about the economic outlook. The Reserve Bank of New Zealand cut rates by a deeper than expected 50 basis points, while the Reserve Bank of India cut rates by 35 basis points, also more than expected.

In economic news, German industrial production dropped much more than expected in June. Following a 0.1 percent monthly rise in May, output shrank 1.5 percent in June for the second fall of more than 1 percent in the last three months. Annual growth was down at minus 5.1 percent, down from minus 4.5 percent in May. The latest setback was broad-based, with intermediates down 2.0 percent, capital goods 1.8 percent and consumer goods 1.4 percent. With energy down 1.6 percent, construction (0.3 percent) was the only subsector to record a rise. Overall manufacturing output declined 1.8 percent.

Asia Pacific Markets

Asian market posted mixed but generally moderate moves Wednesday after strong gains on Wall Street helped to stabilise investor sentiment. Bigger-than-expected policy rate cuts from New Zealand and India, and Chinese authorities’ stance on currency devaluation were also among the major developments driving ongoing uncertainty about the response of officials to global trade tensions. Australia’s All Ordinaries index was among the strongest performers in the region, closing up 0.6 percent after two days of heavy losses, while the Australian dollar weakened to new multi-year lows after the surprise rate cut in New Zealand. Hong Kong’s Hang Seng index was little changed, up 0.1 percent on the day, while Japanese shares were flat with the Nikkei index down 0.3 percent on the day and the Topix index little changed. The Shanghai Composite index was among the weakest performers in the region, closing down 0.3 percent after the People’s Bank of China set the reference rate for the yuan just below the key 7 level against the dollar.

The Reserve Bank of New Zealand cut its policy rate by 50 basis points to a new record low of 1.00 at its meeting Wednesday. This cut was more aggressive than the consensus forecast for a reduction of 25 basis points. Although recent data have been promising, officials noted that inflation remains below the mid-point of their target range of 1.0 percent to 3.0 percent and that the outlook for both employment and inflation is now "softer" than it was previously. They also argued that the balance of risks to meeting inflation and employment objectives is "tilted to the downside" with weakness in the global economy cited as particular concern. Although a smaller rate cut was also considered, officials concluded that a bigger move “would best ensure” their growth and inflation objectives are met.

The Reserve Bank of India also delivered a bigger-than-expected rate cut at its meeting Wednesday, lowering the benchmark rate by 35 basis points to 5.40 percent, compared with the consensus forecast for a cut of 25 basis points. This follows cuts of 25 basis points at its three most recent meetings and takes the rate to its lowest level since mid-2010. Officials lowered their near-term growth forecasts slightly and also retained their assessment that inflation is likely to remain below mid-point of the RBI's target range of 2.0 percent to 6.0 percent over the rest of the fiscal year, suggesting that the policy bias will remain towards further policy easing in coming months.

Looking forward

On Thursday in Asia/Pacific, Chinese merchandise trade data are due.  Europe is quiet. In North America, US jobless claims and weekly Fed balance sheet data will be released.

Global Stock Markets

 

Index

7 Aug 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26007.07

-22.45

-0.1

 

NASDAQ

7862.82

29.55

0.4

 

S&P 500

2883.98

2.21

0.1

Canada

S&P/TSX Comp

16265.22

115.73

0.7

Europe

 

 

 

 

UK

FTSE 100

7198.7

27.01

0.4

France

CAC

5266.51

31.86

0.6

Germany

XETRA DAX

11650.15

82.19

0.7

Italy

MIB

20538.85

-92.89

-0.5

Spain

Ibex 35

8746.1

46.70

0.5

Sweden

OMX Stockholm 30

1528.19

5.16

0.3

Switzerland

SMI

9533.98

-19.90

-0.2

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6588.53

42.08

0.6

Japan

Nikkei 225

20516.56

-68.75

-0.3

 

Topix

1499.93

0.70

0.0

Hong Kong

Hang Seng

25997.03

20.79

0.1

S. Korea

Kospi

1909.71

-7.79

-0.4

Singapore

STI

3184.69

14.22

0.4

China

Shanghai Comp

2768.68

-8.88

-0.3

Taiwan

TAIEX

10386.18

-8.57

-0.1

India

Sensex 30

36690.5

-286.35

-0.8

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.