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On 12 December 2019 - US, Europe up on reports of tentative US-China pact; Asia mixed

Anne D Picker

Anne D Picker - Econoday

Reports say two sides agree in principle on trade deal, but it awaits Trump signoff.

US markets

US equities perked up while Treasuries sold off Thursday on hopeful trade news, including reports from major wire services that the two sides have agreed in principle on a deal that now awaits Trump’s approval. The Dow industrials gained 0.8 percent, the S&P 500 rose 0.9 percent, and the NASDAQ was up 0.7 percent.

The terms of the deal had not been disclosed late Thursday ET. Earlier, the Wall Street Journal said the US had offered to drop tariffs scheduled to take effect on Sunday and would cut other tariffs already in effect, in return for Chinese farm purchases. And President Trump tweeted in the morning that a US-China trade agreement is near.

Among sectors, energy and financials were the day’s big winners, with energy exploration & production leading the way, and banks rising as interest rates popped up on the trade news. Utilities and real estate lagged, along with health care and communications services. Among companies in focus, Delta Airlines rose 3 percent as revenues beat expectations and after raising its guidance.

On the downside, Lululemon Athletica, the sportswear company, fell 3.9 percent on disappointing guidance, despite outperforming market expectations. Facebook slipped 2.8 percent on a Wall Street Journal report that the Federal Trade Commission is probing the social network for anticompetitive practices.

In US economic news, US jobless claims shot 49,000 higher in the week to a far higher-than-expected 252,000, the highest level in more than two years. The Labor Department did not cite any special factors behind the unwelcome surge. Yet a reminder that this may be a one-time fluke is the 4-week average, which rose far less dramatically, up only 6,250 to 224,000. In a separate report, inflation remained muted as US producer prices were unchanged in November. Producer prices less food and energy fell 0.2 percent in the month with PPI less food, energy, and trade services unchanged.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 60 cents to US$64.48, while gold fell US$5.80 to US$1,474.20. The US dollar fell against most major currencies. The US Treasury 30-year bond yield surged 9 basis points to 2.31 percent while the 10-year note yield also rose 9 basis points to 1.89 percent.

European markets

Major European equities indexes firmed Thursday on hopeful news suggesting a US-China deal was likely, and as bank stocks gained on comments from incoming ECB President Christine Lagarde. The Europe-wide STOXX 600 rose 0.3 percent, the German DAX gained 0.6 percent, the French CAC gained 0.4 percent, and the UK FTSE-100 was up 0.8 percent.

Risk assets got a lift from President Trump’s tweet that a trade deal is close and from another report describing a US offer to cancel tariffs set to take effect on Sunday as part of an interim deal. Bank stocks traded higher as bond yields rose after markets saw ECB President Lagarde’s comments as pointing to higher interest rates and rising ECB readiness to address the impact of the bank’s negative interest rate policies on bank profitability.

Among sectors, banks, autos, basic resources, insurance, and oil & gas outperformed, while defensive plays -- food & beverages, real estate, utilities, and health care -- lagged. Among companies in the news, Fiat Chrysler rose 1.8 percent on the hopeful trade news and a labor settlement. WPP Group, a UK ad agency, rose 2.5 percent on a stock buyback.

In economic news, the ECB left key interest rates and forward guidance unchanged. The Governing Council still expects rates "to remain at their present or lower levels” until inflation looks robust near 2 percent. Separately, the Swiss National Bank left its policy rate unchanged at minus 0.75 percent and reiterated its view that the Swiss franc remains ‘highly valued'' and that the foreign exchange market is still fragile. On the data front, Eurozone goods output fell a steeper than expected 0.5 percent in October, the fourth fall in the last five months and sharp enough to reduce annual growth from minus 1.8 percent to minus 2.2 percent

Asia Pacific markets

Major Asian markets posted mixed results Thursday, with a light regional data calendar keeping the focus on the Federal Reserve decision and the United Kingdom election. Hong Kong’s Hang Seng index outperformed with a gain of 1.3 percent after the Federal Reserve signaled that US policy will remain highly accommodative. Japan’s Nikkei and Topix indices were little changed, up 0.1 percent and down 0.1 percent respectively, while the Shanghai Composite index closed down 0.3 percent. Australia’s All Ordinaries index was the weakest in the region, closing down 0.6 percent on the day.

Indian data published Thursday showed a further pick-up in headline inflation in November and a smaller contraction in industrial production in October. India's consumer price index increased by 5.54 percent on the year in November, up from 4.62 percent in October, and is now close to the top of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent. Stronger growth in food prices was again the main factor pushing up headline inflation. India's industrial production index fell 3.8 percent on the year in October, improving moderately from a decline of 4.3 percent in September. After the RBI left policy rates on hold last week, the further increase in headline inflation seen in November may reinforce the case to extend this pause at the RBI's next policy meeting in February.

Japan's private sector machinery orders (excluding volatile items) fell 6.0 percent on the month in September after dropping 2.9 percent in August, significantly weaker than the consensus forecast for growth of 0.9 percent. The drop in headline growth in orders was driven by weaker growth in non-manufacturing orders, down 5.4 percent on the month after increasing 2.6 percent previously. Manufacturing orders fell 1.5 percent on the month after a decline of 5.2 percent previously.

Looking forward

On Friday in Asia/Pacific, the Bank of Japan Tankan report is due for release. In US data, retail sales, import/export prices, and business inventories reports are scheduled.

Global stock markets

 

Index

12 Dec 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

28132.05

220.75

0.8

 

NASDAQ

8717.32

63.27

0.7

 

S&P 500

3168.57

26.94

0.9

Canada

S&P/TSX Comp

16946.9

7.29

0.0

Europe

 

 

 

 

UK

FTSE 100

7273.47

57.22

0.8

France

CAC

5884.26

23.38

0.4

Germany

XETRA DAX

13221.64

74.90

0.6

Italy

MIB

23390.95

235.31

1.0

Spain

Ibex 35

9468.5

76.00

0.8

Sweden

OMX Stockholm 30

1758.24

16.62

0.9

Switzerland

SMI

10451.36

46.05

0.4

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6810.83

-42.41

-0.6

Japan

Nikkei 225

23424.81

32.95

0.1

 

Topix

1712.83

-2.12

-0.1

Hong Kong

Hang Seng

26994.14

348.71

1.3

S. Korea

Kospi

2137.35

31.73

1.5

Singapore

STI

3194.67

21.77

0.7

China

Shanghai Comp

2915.7

-8.72

-0.3

Taiwan

TAIEX

11836.42

135.65

1.2

India

Sensex 30

40581.71

169.14

0.4

Note: all releases are listed in local time.

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