On 09 January, 2019 - Global stocks move higher as this round of US-China trade talks wrapped up

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Anne D Picker - Econoday

10 January 2019

Comments from FOMC members include the word ‘patient’.

US markets

US stocks advanced after the end of US-China trade talks and supportive comments from Fed officials. The Dow and the S&P both closed 0.4 percent higher, while the Nasdaq posted a gain of 0.9 percent.

US-China trade talks finished Wednesday and appeared to have delivered some progress towards reaching a deal that could avert tariff increases. The US plans to increase tariffs on Chinese goods from 10 percent to 25 percent at the start of March unless there is significant progress on issues such as market access and intellectual property. A statement from the office of the US Trade Representative after the end of the talks noted that China had pledged to purchase a “substantial amount” of goods and services from the US and noted that officials will now seek “guidance on the next steps”. Chinese officials have yet to make a public statement.

The Federal Reserve today published the minutes of the FOMC meeting held in December. FOMC members increased the Fed funds rate 25 basis points, but scaled back the number of increases they expected to see in 2019 from three to two. Comments ahead of that meeting had prompted markets to expect that officials would signal only one rate hike in 2019. The minutes show that a “few” of the 17 FOMC members had wanted no increase in rates at the December meeting and that other members agreed that they could "afford to be patient" and that "relatively limited" additional tightening would be necessary. Any tightening, officials promised, would be “informed by incoming data” and that the direction of changes is not pre-set.

FOMC members speaking on Wednesday delivered a message broadly in line with the FOMC minutes, assuring investors that policy moves in the coming year will be gradual and data-dependent. Atlanta Fed President Raphael Bostic, who had previously called for just one rate hike this year, noted signs of weaker business investment plans and argued that the Fed should be patient about further rate increases until there is clarity about the economy’s direction. Chicago Fed President Charles Evans was more positive about the medium-term economic outlook, noting that he expects inflation to pick up further and that there could “eventually” be three more rate hikes. Nevertheless, he acknowledged that there is some near-term uncertainty about the outlook and that the Fed could afford to wait another six months before moving again. Boston Fed President Eric Rosengren suggested that financial markets had become “unduly pessimistic” about the outlook in recent months but argued that policy settings are appropriate for now and that the Fed currently should not have any bias about the direction of policy rates.

The Bank of Canada left its main policy rate on hold at 1.75 percent today, in line with expectations. The statement accompanying this decision indicated that higher interest rates are still anticipated at some point but the timing and pace of increases will depend heavily on prospective moves in global oil prices. With global oil prices now down around 25 percent since the last policy review in October, officials have revised down their 2019 growth forecast from 2.0 percent to 1.7 percent, but have revised up their 2020 growth forecast from 1.9 percent to 2.1 percent. Inflation forecasts are unchanged at 2.0 percent at end-2019 and end-2020.

These data reflect observations at 4:00 PM US ET. Gold was up US$8.30 to US$1294.20. Copper futures were up 0.23 percent to US$2.66. WTI spot crude was up US$2.51 to US$52.29. Dated Brent spot crude was up US$2.66 to US$61.38. The US dollar retreated against all of its counterparts including the yen, euro, pound, Swiss franc and the Canadian and Australian dollars. The yield on the US Treasury 30 year bond was up 2 basis points to 3.02 percent while the 10 year note was unchanged at 2.72 percent.

European markets

Major European indices closed higher on Wednesday. The FTSE and SMI advanced 0.7 percent, while the CAC and the DAX both closed the day up 0.8 percent.

Eurozone data published Wednesday showed a fall in the unemployment rate from 8.0 percent in October to 7.9 percent in November, its lowest level since October 2008. Unemployment rates were stable in France and Germany at 8.9 percent and 3.3 percent respectively, but fell from 10.6 percent to 10.5 percent in Italy and from 14.8 percent to 14.7 percent in Spain. Eurozone youth unemployment fell from 17.1 percent to 16.9 percent.

German data showed a €19.0 billion trade surplus in November, a modest improvement from an upwardly revised €17.9 billion in October and its strongest reading since June. Exports fell 0.4 percent on the month while imports dropped 1.6 percent. Swiss headline inflation fell from 0.9 percent in November to 0.7 percent in December, its lowest level since February.

Asia Pacific Markets

Asia Pacific markets posted solid gains Wednesday, with investors appearing to gain confidence that US-China trade tensions will be resolved. Hong Kong’s Hang Seng Index was the strongest performer in the region, up 2.3 percent. Japan’s Nikkei and Topix indices both advanced 1.1 percent on the day, as did the Singapore STI, while Australia’s All Ordinaries Index closed 1.0 percent higher.

Stocks also moved higher in Shanghai, up 0.7 percent on the day, but concerns about the domestic economic outlook appeared to remain a factor weighing on investor sentiment. Chinese auto producers were among the gainers Wednesday after officials indicated they would introduce new measures aimed at increasing consumer spending as part of efforts to boost growth.

Looking forward

Chinese inflation data for December will be released shortly. Fed Chairman Jerome Powell is scheduled to participate in a discussion at the Economic Club of Washington in Washington, DC, with public comments also expected elsewhere from several Fed presidents. The ongoing government shutdown is expected to delay the release of wholesale trade data but jobless claims data will be published. Highlights of the European data calendar include minutes of the December ECB meeting and French industrial production data.

Global Stock Markets

 

Index

09 Jan 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

23879.12

91.67

0.4

 

NASDAQ

6957.08

60.08

0.9

 

S&P 500

2584.96

10.55

0.4

Canada

S&P/TSX Comp

14804.73

199.58

1.4

Europe

 

 

 

 

UK

FTSE 100

6906.63

45.03

0.7

France

CAC

4813.58

40.31

0.8

Germany

XETRA DAX

10893.32

89.34

0.8

Italy

MIB

19179.16

179.02

0.9

Spain

Ibex 35

8823.60

-23.70

-0.3

Sweden

OMX Stockholm 30

1470.51

13.04

0.9

Switzerland

SMI

8687.71

58.23

0.7

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

5838.36

55.07

1.0

Japan

Nikkei 225

20427.06

223.02

1.1

 

Topix

1535.11

16.68

1.1

Hong Kong

Hang Seng

26462.32

586.87

2.3

S. Korea

Kospi

2064.71

39.44

1.9

Singapore

STI

3158.07

35.13

1.1

China

Shanghai Comp

2544.34

17.88

0.7

Taiwan

TAIEX

9738.31

174.71

1.8

India

Sensex 30

36212.91

231.98

0.6

Data Source —  Haver Analytics

 

 

 

Note: all releases are listed in local time.

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