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On 12 February 2019 - US stocks rally on confidence about government shutdown and trade talks

Anne D Picker

Anne D Picker - Econoday

India inflation data suggest further rate cuts possible; Australian government loses key vote in parliament.

US markets

US stocks made strong gains Tuesday, with investors increasingly confident that ongoing negotiations will prevent another government shutdown and avert a scheduled increase in tariffs on Chinese imports. The Dow and the Nasdaq closed up 1.5 percent, while the S&P advanced 1.3 percent, with gains broad-based across sectors.

Senior Democrat and Republican lawmakers met late Monday and agreed “in principle” on a deal that would fund additional border security barriers and avert another government shutdown before the extension of funding agreed to last month expires at the end of the week. The agreement would fund the Department of Homeland Security and other federal agencies through September but the amount of funding for border security falls well short of the amount sought by the Administration. President Trump has indicated that he is unsatisfied with this deal but also said he expects to avoid another government shutdown.

The US data calendar was light Monday. Redbook survey data on retail sales showed a further drop in year-on-year growth in the February 9 week but labour market data indicated job openings continue to outpace hiring in December, consistent with anecdotal reports of staff shortages in some industries. A report from the New York Fed showed an increase in household debt in the three months to December, with a fall in mortgage originations offset by increases in auto loans and credit card debt. Federal Reserve Chairman Jerome Powell spoke Monday but his comments on economic conditions and the policy outlook were limited and in line with previous statements.

These data reflect observations at 4:00 PM US ET. Gold reversed some of its earlier gains late in the day but closed up US$2.70 to US$1,314.60 while dated Brent spot crude advanced US$0.92 to US$62.43. With risk appetite among investors picking up over the day, the US dollar made moderate gains against safe-haven currencies the yen and Swiss franc but weakened against other major currencies. The yield on the US Treasury 30 year bond rose 2 basis points to 3.02 percent while the 10 year note rose 3 basis points to 2.68 percent.

European markets

Major European markets advanced Tuesday with a bare regional data calendar keeping the focus on Brexit uncertainty, US-China trade talks, and the prospects of a US government shutdown. The FTSE underperformed other regional indices, closing up just 0.1 percent, while the CAC rose 0.8 percent and the DAX gained 1.0 percent. The French market was boosted by strong gains for Michelin after the auto supplier provided positive guidance for 2019 profits. 

UK Prime Minister Theresa May addressed parliament Tuesday, telling legislators the government remains committed to securing the concessions from the European Union that are required to secure a parliamentary majority in favour of a Brexit deal. EU leaders and officials have consistently stated that they will not re-negotiate the Brexit agreement made last year but have indicated some willingness to accommodate UK concerns in a separate deal that would cover the post-Brexit relationship between the UK and the EU. Prime Minister May told parliament that the government will present to it a revised deal by the end of the month but it remains unclear whether any compromise is possible that will be accepted by both the EU and the UK parliament. The UK is due to leave the EU at the end of March.

Asia Pacific Markets

Japanese markets posted strong gains on Tuesday after Monday’s holiday, with the Nikkei up 2.6 percent and the Topix gaining 2.2 percent on their Friday closing levels. The Shanghai composite index advanced 0.7 percent on the day, Hong Kong’s Hang Seng index closed up 0.1 percent, and Australia’s All Ordinaries index gained 0.3 percent.

US-China trade talks continued Tuesday in Beijing but officials have yet to make public statements on their progress. High-level officials are set to meet later in the week. The US is scheduled to increase tariffs on Chinese imports from 10 percent to 25 percent at the start of March if agreement is not reached on issues such as market access and intellectual property protection. However, some reports, and comments Tuesday from President Trump suggest this deadline may be extended if the two sides are close to a deal as the deadline approaches.

Indian data showed headline inflation fell from 2.19 percent in December to 2.05 percent in January, just above the bottom of the Reserve Bank of India’s target range of 2.0 percent to 6.0 percent. Industrial production grew by 2.4 percent on the year in December, rebounding from growth of just 0.5 percent in November. Sharp falls in inflation and relatively subdued activity indicators in recent months prompted the RBI to cut policy rates at its meeting last week, with newly-appointed Governor Shaktikanta Das overseeing a clear shift in the policy focus from curbing inflation to boosting growth. Further rate cuts will likely be considered if inflation remains at its current low levels.

Australian data provided further evidence of weakness in the residential property market, with both the volume and value of home loans falling sharply in December. House prices in the two largest cities, Sydney and Melbourne, weakened significantly in 2018 and this looks set to continue into the new year. Officials at the Reserve Bank of Australia, however, so far consider this slowdown to be a "manageable adjustment" and do not expect it to "derail" economic growth.

Nevertheless, weakness in the housing market appears to have been a significant factor in shifting officials' view of the policy outlook from one in which they expected the next move in policy rates to be an increase to a more evenly balanced view.

The Australian government Tuesday was outvoted in the lower house of parliament on legislation relating to medical treatment for asylum-seekers detained offshore. The government has not commanded a majority in parliament in recent months and has been relying on the support of some independent legislators, but these joined forces with the opposition party to pass the legislation. This is the first time in decades that a government has lost a vote on its own legislation in the lower house, casting doubts on its ability to retain an effective majority. The government is due to call a national election by May but Prime Minister Scott Morrison has indicated that he does not intend to do so immediately, despite losing the vote.

Looking forward

The Reserve Bank of New Zealand policy decision will be announced shortly, with officials expected to leave rates on hold. UK and US inflation data will be the highlights of the European and American data calendars, with three regional Fed presidents also scheduled to speak.

Global Stock Markets

 

Index

Feb 12 2019

Daily Change

% Change Daily

North America

United States

Dow

25425.76

372.65

1.5

 

NASDAQ

7414.62

106.72

1.5

 

S&P 500

2744.73

34.93

1.3

Canada

S&P/TSX Comp

15642.10

73.25

0.5

Europe

UK

FTSE 100

7133.14

4.03

0.1

France

CAC

5056.35

41.88

0.8

Germany

XETRA DAX

11126.08

111.49

1.0

Italy

MIB

19805.28

218.72

1.1

Spain

Ibex 35

8983.10

46.70

0.5

Sweden

OMX Stockholm 30

1549.41

7.08

0.5

Switzerland

SMI

9127.40

58.78

0.6

Asia/Pacific

Australia

All Ordinaries

6148.70

20.13

0.3

Japan

Nikkei 225

20864.21

531.04

2.6

 

Topix

1572.60

33.20

2.2

Hong Kong

Hang Seng

28171.33

27.49

0.1

S. Korea

Kospi

2190.47

9.74

0.4

Singapore

STI

3201.15

-5.12

-0.2

China

Shanghai Comp

2671.89

17.99

0.68

Taiwan

TAIEX

10097.74

93.49

0.9

India

Sensex 30

36153.62

-241.41

-0.7

* Market closed
Source: Haver Analytics

Note: all releases are listed in local time.

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