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On 10 July 2019 - US up on Powell comments, Europe off, Asia mixed

Anne D Picker

Anne D Picker - Econoday

Market sees at least 25 basis point rate cut at Fed’s July 30-31 meeting.

US markets

US stocks rose Wednesday as Fed Chair Jay Powell’s comments helped restore market expectations for a rate cut of at least 25 basis points late this month. The Dow industrials rose 0.3 percent; the S&P rose 0.5 percent, and the NASDAQ gained 0.7 percent.

Powell highlighted risks to the US economy, especially trade tensions and global economic slowing, and said inflation weakness may be "even more persistent than we currently anticipate." He said trade issues are hurting business confidence, which he said is starting to slow growth in business investment. Powell said residential investment and manufacturing production, after declining in the first quarter, appear to be weakening during the ongoing quarter. In questions and answers, Powell would not comment on whether a 50 basis point rate cut would be warranted at the Fed’s month-end policy meeting.

Tech shares outperformed on the Powell comments, along with megacap Internet-related companies. Chipmaker Smart Global Holdings (up 25 percent) was a notable winner on news of earnings-accretive acquisitions. Facebook, Apple, Amazon, Google, and Microsoft all rose 1 percent to 2 percent. Energy shares advanced on rising oil prices, with Laredo Petroleum up 3.4 percent. Exxon Mobil rose 1.4 percent.

Financials and industrials underperformed. WSFS Financial, a bank holding company, fell 3.8 percent on loan charge-offs. Agriculture equipment maker Deere was off 1.5 percent after an analyst downgrade. Among other shares in focus, American Airlines rose 1.8 percent after the airline raised its second quarter guidance. Levi Strauss, the clothing maker, fell 11.5 percent after an earnings miss. Housewares company Helen of Troy rallied 11.1 percent on an earnings beat.

In other economic news, the Bank of Canada kept rates steady, as expected, but warned of rising uncertainty about the outlook in light of global trade worries. The BoC said growth in the second quarter was lifted by temporary factors.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude was up US$2.65 to US$66.81 while gold rallied US$20.88 to $1,418.48. The US dollar fell against most major currencies. The yield on the US Treasury 30-year bond yield was up 3 basis points at 2.57 percent while the yield on the 10-year note was down 1 basis point at 2.06 percent.

European markets

European equities gave up gains by the close after initially rallying Wednesday as Fed Chair Jay Powell’s prepared comments reassured traders that rate cuts are coming.

The European STOXX 600 was down 0.2 percent, the German DAX lost 0.5 percent, and both the French CAC and UK FTSE 100 fell 0.1 percent.

Traders noted a downgrade in the European Commission growth forecast for the euro area next year. The forecast for euro area GDP growth in 2019 remains unchanged at 1.2%, while the forecast for 2020 has been lowered to 1.4% from 1.5 percent previously.

Among sectors, basic resources and oil and gas outperformed, while real estate and telecom underperformed.

In economic news, UK GDP rose 0.3 percent on the month in May following an unrevised 0.4 percent contraction in April (but stronger revised 0.1 percent in March). This was the economy's best performance so far in 2019 although the monthly profile has been distorted by Brexit effects. Quarterly growth was a higher than anticipated 0.3 percent although this was still short of the 0.5 percent and 0.4 percent rates reported in January-March and February-April respectively.

French goods-producing industries had a surprisingly good May. Output rose 2.1 percent on the month, its strongest increase since November 2011 and that after a slightly steeper revised 0.5 percent advance in April. Italian May industrial production secured its first increase since February. Following a revised 0.8 percent monthly fall in April, output rose a steeper than expected 0.9 percent, equaling its best performance since January.

Asia Pacific Markets

Major Asian markets posted mixed but generally modest moves Wednesday, with Fed Chairman Powell’s pending testimony overshadowing the release of Japanese and Chinese inflation data. The Shanghai Composite index fell 0.4 percent on the day, while Japan’s Nikkei closed down 0.2 percent. Hong Kong’s Hang Seng index advanced 0.3 percent, while Australia’s All Ordinaries index were among the strongest performers in the region, closing up 0.4 percent with weakness in major miners offset by solid gains by banks.

China's headline consumer price index advanced 2.7 percent on the year in June, unchanged from the 15-month high recorded in May and matching the consensus forecast. Higher fresh fruit and pork prices pushed up food inflation from 7.7 percent to 8.3 percent, while the year-on-year change in non-food prices moderated from 1.6 percent to 1.4 percent, with little change in most categories. China's headline producer price index was unchanged on the year in June, down from an increase of 0.6 percent in May, with this decline mainly driven by weaker global oil prices.

Japan's producer price index fell 0.1 percent on the year in June, slowing sharply from an increase of 0.6 percent in May and weaker than the consensus forecast for an increase of 0.3 percent. The decline in headline PPI inflation in June was broad-based across most major categories and, as with China, was largely driven by weaker global oil prices. More subdued producer price inflation in June is in line with PMI survey data released earlier in the month which indicate input costs in the manufacturing sector rose at the slowest pace in more than two years. June consumer price data are scheduled for release next week.

Looking forward

Fed Chair Jay Powell is scheduled to testify before Congress for a second day on Thursday morning in Washington, D.C. In Asian data Thursday, Japan’s Tertiary Index is scheduled. In Europe, Germany and France issue CPI data, and the ECB will release minutes of its latest Governing Council meeting. In North America, US CPI, jobless claims, EIA Natural Gas Report, and Treasury budget.

Global Stock Markets

 

Index

10 Jul 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26860.2

76.71

0.3

 

NASDAQ

8202.53

60.80

0.7

 

S&P 500

2993.07

13.44

0.5

Canada

S&P/TSX Comp

16563.29

18.08

0.1

Europe

 

 

 

 

UK

FTSE 100

7530.69

-5.78

-0.1

France

CAC

5567.59

-4.51

-0.1

Germany

XETRA DAX

12373.41

-63.14

-0.5

Italy

MIB

22044.96

158.79

0.7

Spain

Ibex 35

9252.9

-21.00

-0.2

Sweden

OMX Stockholm 30

1622.45

-8.43

-0.5

Switzerland

SMI

9937.56

-23.78

-0.2

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6777.68

27.56

0.4

Japan

Nikkei 225

21533.48

-31.67

-0.1

 

Topix

1571.32

-3.57

-0.2

Hong Kong

Hang Seng

28204.69

88.41

0.3

S. Korea

Kospi

2058.78

6.75

0.3

Singapore

STI

3340.42

10.96

0.3

China

Shanghai Comp

2915.3

-12.93

-0.4

Taiwan

TAIEX

10798.48

95.70

0.9

India

Sensex 30

38557.04

-173.78

-0.4

*Markets closed

Data Source — Haver Analytics

Note: all releases are listed in local time.

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