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On 12 September 2019 - US, Europe, Asia up on supportive US-China trade news

Anne D Picker

Anne D Picker - Econoday

ECB stimulus package a bit more aggressive than expected

US markets

US equities ended slightly higher Thursday on favorable signs from the US-China trade dispute, and an ECB policy announcement somewhat more dovish than the market’s scaled-back expectations. The Dow industrials rose 0.2 percent; the S&P 500 gained 0.3 percent, and the NASDAQ was up 0.3 percent.

News on the trade front included word of a large sale of US soybeans to China Thursday, and President Trump’s announcement that he would delay certain tariffs. Fixed income markets retreated on the trade and ECB news, and on strong US data.

Outperforming stock sectors included gaming and home builders, metals and mining, and technology services. Laggards were energy, reflecting soft oil prices, plus industrial machinery and health care.

Notable gainers included ehealth, an online health insurance market, up 2.7 percent on a buy recommendation from Deutsche Bank, and Yelp, up 5.6 percent on a report Groupon is considering acquiring the online consumer ratings service. Abbvie, a pharmaceutical company, rose 2.0 percent on a buy recommendation from UBS. On the downside, Oracle, the software company, dropped 4.3 percent on an earnings miss. Deere & Co., the heavy equipment maker, fell 1.1 percent on a downgrade from Wells Fargo. AT&T, the iconic telecom, fell 1.0 percent on gloomy guidance from its CEO at an industry conference.

In US economic data, core inflation in the consumer price report rose a higher-than-expected 0.3 percent in August for the third straight 0.3 percent reading and the hottest streak of the expansion. The core's year-on-year rate of 2.4 percent is up 1 tenth and is also higher than expected and also an expansion high. These results favor the hawks at next week's FOMC meeting and may well lower what chances there are for an upsized 50-basis-point cut. Separately, jobless claims in the September 7 week came in at a much lower-than-expected 204,000, driving the 4-week average down 4,250 to 212,500. This average is running just below levels in August, which offers an early hint of comparative September-to-August strength for the September employment report.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 78 cents to US$60.32, while gold rose by US$2.80 to US$1,506.70. The US dollar fell against most major currencies. The US Treasury 30-year bond yield rose 4 basis points to 2.26 percent while the 10-year note yield was up 4 basis points to 1.78 percent.

European markets

European equities edged up Thursday on better US-China trade news, and after the market judged the ECB stimulus package to be slightly more dovish than expected. The Europe-wide STOXX 600 rose 0.2 percent, the German DAX gained 0.4 percent, and the French CAC was also up 0.4 percent. The UK FTSE-100 gained 0.1 percent.

The ECB cut its deposit rate by 10 basis points, as markets expected, and announced bond purchases of 20 billion euros per month. The bank promised to hold rates at current or lower levels, with no end date, until inflation has "robust" converged at its target level near 2%. It also eased terms of its TLTRO facility to banks and said it would introduce a multi-tier deposit rate facility to help them. In trade news, President Trump said he would delay some tariffs on Chinese goods, and there were reports of Chinese purchases of US farm goods ahead of next month’s trade talks. In other macro news, the German Ifo think tank warned Germany was facing a recession, and Eurozone industrial production fell more than expected.

Among shares in the STOXX 600, utilities, chemicals, and autos & parts outperformed, while oil & gas, travel & leisure, and health care underperformed. Banks initially sold off on the ECB news, as interest rates and the euro declined, but they recovered from their worst levels.

In corporate news, German auto parts maker Knorr Bremse was off 0.7 percent on an earnings disappointment, while British American Tobacco rose 1.0 percent on news of layoffs and cost-cutting. Anheuser-Busch Inbev, the beer company, rose 2.9 percent on news it would list its Asian unit in an IPO.

In economic news, Eurozone goods production failed to rebound as expected in July. Following a 1.4 percent monthly slump in June, output (ex-construction) fell a further 0.4 percent, its fourth drop in the last five months. Despite strongly positive base effects, annual growth remained deep in negative territory at minus 2.0 percent, up 0.4 percentage points from last time.

Asia Pacific markets

Most Asian markets posted moderate gains Thursday after positive news on US-China trade relations. President Trump advised late Wednesday that he would postpone planned tariff increases on US$250 billion worth of Chinese goods from October 1 to October 15, while Chinese officials indicated Thursday that Chinese companies would be able to resume purchases of US farm products.

The Shanghai Composite index advanced 0.8 percent on the day while Japan’s Nikkei and Topix indices closed up 0.8 percent and 0.7 percent respectively on Japanese data showing weak producer prices, a smaller-than-expected drop in machinery orders, and some improvement in service sector conditions. Australia’s All Ordinaries index closed up 0.2 percent on the day, while Hong Kong’s Hang Seng index fell 0.3 percent.

Japan's producer price index fell 0.9 percent on the year in August, weakening further from a decline of 0.6 percent in July and slightly below the consensus forecast for a decline of 0.8 percent. PMI survey data also showed weaker input costs in August. Private sector machinery orders (excluding volatile items) fell 6.6 percent on the month in July after increasing 13.9 percent in May, a drop less pronounced than the consensus forecast for a decline of 9.9 percent. Non-manufacturing orders fell sharply on the month but manufacturing orders rebounded. The Index of Tertiary Industry Activity rose 0.1 percent in July after slipping 0.1 percent in June, at odds with PMI survey data that showed slightly weaker conditions.

Indian data published Thursday showed industrial production growth picking up in July but headline inflation in August remained below the mid-point of officials' target range of 2.0 percent to 6.0 percent. Industrial production rose 4.3 percent on the year in July, up from 2.0 percent in August, broadly in line with an improvement in conditions shown by PMI survey data. India’s consumer price index rose 3.21 percent on the year in August, up only slightly from 3.15 percent in July, mainly reflecting stronger growth in food prices rather than any pick-up in broader price pressure. With the Reserve Bank of India having already cut policy rates at each of its previous three meetings, Thursday’s data showing inflation still near the bottom of the target range suggest that the bias of officials likely remains in favour of further rate cuts in coming months.

Looking forward

Friday will be a light day for economic data with no major releases set from Asia and only merchandise trade data scheduled for Eurozone. From the US, the following are on tap: retail sales, consumer sentiment, import & export prices, and business inventories.

Global stock markets

 

Index

12 Sep 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

27182.45

45.41

0.2

 

NASDAQ

8194.47

24.79

0.3

 

S&P 500

3009.57

8.64

0.3

Canada

S&P/TSX Comp

16643.28

32.14

0.2

Europe

 

 

 

 

UK

FTSE 100

7344.67

6.64

0.1

France

CAC

5642.86

24.80

0.4

Germany

XETRA DAX

12410.25

51.18

0.4

Italy

MIB

22083.17

191.60

0.9

Spain

Ibex 35

9082.3

22.80

0.3

Sweden

OMX Stockholm 30

1651.45

13.83

0.8

Switzerland

SMI

10094.09

-4.50

0.0

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6765.66

13.51

0.2

Japan

Nikkei 225

21759.61

161.85

0.8

 

Topix

1595.1

11.44

0.7

Hong Kong

Hang Seng

27087.63

-71.43

-0.3

S. Korea

Kospi

*

*

*

Singapore

STI

3194.96

-9.56

-0.3

China

Shanghai Comp

3031.24

22.43

0.8

Taiwan

TAIEX

10827.55

37.20

0.3

India

Sensex 30

37104.28

-166.54

-0.5

*Markets closed

Note: all releases are listed in local time.

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