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On 10 December 2019 - US, Europe, Asia flat to lower amid trade uncertainty

Anne D Picker

Anne D Picker - Econoday

Reports see likely delay in new US tariffs on Chinese goods now set for Dec. 15.

US markets

US equities ended flat to weaker Tuesday despite reports suggesting the US will delay new tariffs on Chinese goods scheduled to start on Dec. 15. The Dow industrials, the S&P 500, and the NASDAQ all slipped 0.1 percent.

Markets remained uncertain about prospects for a face-saving interim US-China trade deal, but risk assets were bolstered by reports from the Wall Street Journal and Bloomberg that the US will defer a new batch of tariffs as the talks continue.

Traders trimmed risk positions ahead of Wednesday’s Federal Reserve policy announcement, and Thursday’s ECB and Swiss National Bank policy announcements, plus the UK election outcome. News that the US, Canada, and Mexico have reached agreement on a successor to NAFTA provided limited support to equities, along with firmer crude oil prices.

Among sectors, tech, health care, and utilities outperformed while REITs, consumer staples, and materials lagged. Among companies in focus, builder Toll Brothers slipped 4.7 percent after reporting its margins declined and would continue to fall, despite topping profits and revenue expectations. Netflix dropped 3.3 percent after an analyst predicted the online streaming video leader would lose many subscribers to competitors next year. On the plus side, AutoZone, the auto parts retailer, rallied 6.9 percent after an earnings and same-store sales beat amid strong business conditions. Stitch Fix, the online clothing service, rose 4.4 percent after a big earnings beat.

In economic news, the US small business optimism index rose more sharply than expected in November, up 2.3 points to 104.7 and well past Econoday's high estimate. The 2.3-point jump is the largest monthly gain since May 2018. Separately, third-quarter productivity was revised 1 tenth lower to annual contraction of 0.2 percent. Compensation, which was initially pegged at 3.3 percent annual growth in the first estimate, was revised down to 2.3 percent in turn making for a 1.1 percentage point downward revision in unit labor costs to 2.5 percent. Real compensation (adjusted for inflation) rose at only a 0.5 percent pace in the quarter which compares with 2018's 0.8 percent pace.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 21 cents to US$64.36, while gold rose US$3.90 to US$1,469.00. The US dollar fell against most major currencies. The US Treasury 30-year bond yield rose 1 basis point to 2.27 percent while the 10-year note yield rose 2 basis points to 1.84 percent.

European markets

Major European equities indexes mostly edged down Tuesday as traders pared positions amid uncertainty over US-China trade and pending risk events. The Europe-wide STOXX 600 eased 0.3 percent, the German DAX fell 0.3 percent, the French CAC gained 0.1 percent, and the UK FTSE-100 slipped 0.3 percent.

Markets remain on alert ahead of the Dec. 15 deadline for the US to impose another round of tariffs on Chinese goods, including electronics, which have skirted US import duties so far. Bloomberg and the Wall Street Journal both reported the US is likely to delay any new tariffs while talks continue as the two sides remain at odds over Chinese farm purchases and US tariff cuts.

Traders are also awaiting the Fed’s policy statement on Wednesday, and European events on Thursday including ECB and Swiss National Bank monetary policy announcements, and the UK general election.

Among sectors, trade-sensitive miners and auto shares underperformed, along with telecom, food & beverage, while defensive sectors including utilities, real estate, and health care outperformed. Among companies in focus, French pharma Sanofi rose 5.9 percent after announcing a new business plan. On the losing side, UK clothing retailer Ted Baker dropped 13.4 percent after cutting its guidance and suspending its dividend.

In economic news, ZEW's December survey proved surprisingly upbeat and suggests that the German economy could be recovering. Current conditions weighed in at minus 19.9, up from minus 24.7 in November and equaling their highest mark since August. The expectations gauge jumped 12.8 points to 10.7. This was its first back-to-back increase since March/April. In a separate report, the UK economy failed to grow for a third successive month in October.

Asia Pacific markets

Most Asian markets closed lower Tuesday, though moves were generally moderate. Australia’s All Ordinaries index underperformed with a decline of 0.4 percent, Hong Kong’s Hang Seng index closed down 0.2 percent, and Japan’s Nikkei and Topix indices both fell 0.1 percent on the day. The Shanghai Composite index closed up 0.1 percent.

Chinese inflation data were the main highlight of the regional data calendar. China's headline consumer price index increased 4.5 percent on the year in November, accelerating further from 3.8 percent in October, above the consensus forecast of 4.3 percent, and the strongest rate of inflation since 2012. Ongoing disruptions in pork supply remain the driving factor behind the continued rise in headline inflation, with food price inflation increasing from 15.5 percent to 19.1 percent. Yet excluding this factor, underlying price pressures remain subdued, with the year-on-year change in non-food prices picking up slightly from 0.9 percent to 1.0 percent. The producer price index fell 1.4 percent on the year in November after dropping 1.6 percent in October.

Data released after the local trading session showed total new yuan loans made by Chinese banks in November amounted to CNY1,390 billion, up from CNY661.3 billion in October. This increase in November is broadly in line with the normal seasonal pattern associated with national holidays in October. Total outstanding loans rose by 12.4 percent on the year at the end of November, unchanged from the pace in October.

Australia's residential property price index rose 2.4 percent on the quarter in the three months to September after declining 0.7 percent in the three months to June. This increase follows six consecutive quarterly declines in house prices. The index fell 3.7 percent on the year, after a drop of 7.4 percent previously. The quarterly increase in the headline index was mainly driven by strong rebounds in prices in the two largest Australian cities, Sydney and Melbourne, which both rose 3.6 percent on the quarter after a long period of declines

Looking forward

On Wednesday in Asia/Pacific, the Japanese PPI report is due for release. In North America, the FOMC announcement and Fed chair press conference are scheduled. In data, the US CPI and US Treasury budget reports are due.

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Note: all releases are listed in local time.

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