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On 11 November 2019 - US flat to lower; Europe, Asia off on trade picture, other risks

Anne D Picker

Anne D Picker - Econoday

Uncertainty over US-China trade unsettles markets after latest Trump remarks.

US markets

US equities ended flat to slightly lower Monday on mixed trade signals, though equities recovered from early lows on news that Boeing’s 737 Max fleet may fly again soon. The Dow industrials rose 0.04 percent, the S&P 500 declined 0.2 percent, and the NASDAQ eased 0.1 percent.

US-China trade remained the focus, amid uncertainty over prospects for a trade pact and uncertainty over whether the US will implement threatened tariffs on European autos. President Trump said on Saturday the US-China talks were going “nicely” but that he has not agreed to roll back tariffs, and that the US would only make a deal that addresses US needs. Markets hope Trump will say something about trade during a lunchtime speech Tuesday in New York.

Boeing rose 4.6 percent to help the Dow industrials outperform after the beleaguered company said commercial flights of its 737 Max planes could resume in January, after being grounded following fatal crashes. The aerospace giant said it plans to resume deliveries in December.

Health care shares underperformed, with managed care especially weak. Communications services were hurt by declines in internet and entertainment names. Energy shares declined with oil prices on trade worries. Consumer discretionary shares suffered, with auto suppliers lower. Real estate, the defensive sector, was a leader.

Among other companies in the news, Walgreens Boots Alliance, the drug chain, rose 5.1 percent on a report that it may accept an offer by private equity company KKR in the biggest-ever leveraged buy-out. Chinese online shopping leader Alibaba was off 0.2 percent as markets focused on its global Singles Day shopping event.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 46 cents to US$62.16, while gold fell by US$3.50 to US$1456.80. The US dollar declined against major currencies. US Treasuries did not trade during US hours in observance of Veterans Day.

European markets

Major European equities indexes were flat to lower Monday as the market’s mood darkened on weak Chinese lending data, trade uncertainty, and worsening Hong Kong protests. The Europe-wide STOXX 600 slipped 0.02 percent, the German DAX fell 0.2 percent, the French CAC rose 0.1 percent and the UK FTSE-100 slipped 0.4 percent.

President Trump’s weekend comment that he has not agreed to roll back Chinese tariffs dampened market sentiment, but he also said talks were moving along “nicely,” and Commerce Secretary Wilbur Ross said again the US may not need to implement threatened tariffs on European autos. News of another shooting in the Hong Kong protests added to worries. Spanish election results added to uncertainty, with no party able to form a government.

UK export-oriented stocks underperformed on sterling’s rise after Nigel Farage’s Brexit Party said it would not contest previously-held Conservative Party seats, a boost for Prime Minister Boris Johnson. UK stocks also suffered from Moody’s warning that it may downgrade British sovereign debt.

Food & beverage, media, travel & leisure, and real estate shares outperformed, while underperformers included miners, chemicals, autos & parts, and industrial goods & services.

In economic news, UK total output contracted 0.1 percent on the month in September. The decrease followed a steeper revised 0.2 percent decline in August and constituted the first back-to-back fall in real GDP in more than two years. The drop put quarterly growth at 0.3 percent, a tick short of the market median but 0.1 percentage point above its downwardly revised July-August post. The annual rate of expansion eased from 1.0 percent to 0.9 percent, its worst reading in more than a year.

Asia Pacific markets

Most major Asian markets closed lower Monday after President Trump indicated that he had not agreed to any cancellation of planned increase in tariffs on Chinese goods, and concerns mounted about civil unrest in Hong Kong. Hong Kong’s Hang Seng index fell 2.6 percent, with the arrest of legislators over the weekend followed by reports Monday that two protesters had been critically injured. The Shanghai Composite index also fell heavily Monday, closing down 1.8 percent. Japan’s Nikkei and Topix indices were relatively steady, down 0.3 percent and up 1.0 percent respectively, while Australia’s All Ordinaries index outperformed with a gain of 0.6 percent.

Japan's private sector machinery orders (excluding volatile items) fell 2.9 percent on the month in September after dropping 2.4 percent in August, significantly weaker than the consensus forecast for growth of 1.6 percent. Manufacturing orders fell 5.2 percent on the month after a decline of 1.0 percent previously, broadly in line with other data showing weakness in the manufacturing sector. Non-manufacturing orders, in contrast, rebounded with growth of 2.6 percent after dropping 8.0 percent in August.

Chinese finance data published after the close of trading showed the amount of new yuan loans made by Chinese banks in October amounted to CNY661.3 billion, down from CNY1,690 billion in September and falling short of the consensus forecast of CNY800 billion. This decline in October is broadly in line with the normal seasonal pattern associated with national holidays early in the month, but year-on-year growth in new loans was subdued, suggesting that underlying credit conditions are weak. Other forms of financing also dropped sharply in October, with aggregate financing to the economy falling from CNY2,270 billion to CNY618.9 billion, its lowest level since July 2016.

India's industrial production index fell 4.3 percent on the year in September, weakening further from a decline of 1.1 percent in August and weaker than the consensus forecast for a drop of 2.2 percent. This is the biggest year-on-year contraction in industrial production since late 2011 and was mainly driven by a similar decline in manufacturing output, which accounts for almost 78 percent of the total index. At the most recent policy meeting last month, officials at the Reserve Bank of India lowered their GDP forecasts and cut policy rates for the fifth time in a row. This further weakness in industrial production will likely reinforce officials' bias in favour of further policy rate cuts in coming months

Looking forward

On Tuesday in Asia, Indian CPI data are due. In Europe, the UK labor market report and German ZEW survey data are scheduled. In North America, President Trump is scheduled to speak at midday to the Economic Club of New York. Earlier, US NFIB Small Business Optimism data will be released.

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Note: all releases are listed in local time.

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