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On 11 October 2019 - US, Europe, Asia rise on hopes for US-China, Brexit accords

Anne D Picker

Anne D Picker - Econoday

Friday rally ends a banner week for risk assets.

US markets

US equities rose Friday as reports suggested progress toward an interim US-China trade accord, and toward an EU-UK agreement for an orderly Brexit. The Dow industrials rose 1.2 percent, the S&P 500 gained 1.1 percent, and the NASDAQ rose 1.3 percent. Each of the major indexes ended well below the day’s highs on evident position-squaring after a big week of gains.

The Brexit talks appeared to gather momentum after the UK conceded on the controversial Irish customs backstop, though any deal must be ratified by Parliament. In the US, President Trump confirmed late in the day an interim China trade accord, including a delay in US imposition of the next round of tariffs on Chinese goods scheduled for Oct 15, and Chinese purchases of US farm goods.

Cyclical stocks outperformed, with materials, industrials, and energy sectors leading, while defensive sectors underperformed. Apple, up 2.7 percent, continued its run to new highs after analysts upgraded the iphone-maker’s sales outlook this week. Bank stocks advanced as interest rates rose, with money center banks leading. Citigroup rose 2.2 percent, while JP Morgan Chase rose 1.7 percent.

Among companies in the news, Fastenal, the construction supplies company, rallied 17 percent after reporting an earnings beat and maintaining guidance as it managed to raise prices despite slowing economic conditions. Fast-food company Wendy’s rose 3.9 percent after raising its guidance. Boston Beer, maker of Sam Adams, rose 4.0 percent after an analyst upgrade because of strong sales of alcoholic seltzer.

In US economic news, consumer sentiment bounced up in October, to a much stronger-than-expected 96.0 that easily exceeds Econoday's consensus range. The assessment of current conditions is the strong point in October's report, up nearly 5 points to 113.4 in what is a positive indication for consumer spending this month. Expectations are also higher, up 1.4 points to 84.8. Separately, the Fed announced technical steps to address liquidity shortages in the banking system. The Fed said it would purchase Treasury bills starting October 15 at least through the second quarter of next year, at an initial pace of around $60 billion per month. In addition, the Fed said it would conduct term and overnight repos at least through January 2020 to ease money market pressures.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.37 to US$60.62, while gold fell by US$9.90 to US$1,489.00. The US dollar fell against most major currencies, but it rose vs. the yen. The US Treasury 30-year bond yield rose 4 basis points to 2.20 percent while the 10-year note yield rose 7 basis points to 1.74 percent.

European markets

European equities rallied Friday on reports of progress toward an EU-UK Brexit deal, and reports suggesting the US and China are nearing an interim trade pact. The Europe-wide STOXX 600 jumped by 2.3 percent, the German DAX rose 2.9 percent, the French CAC gained 1.7 percent, and the UK FTSE-100 rose 0.8 percent. UK domestic shares outperformed their export-oriented counterparts as the market upgraded domestic economic prospects, while export-oriented shares underperformed as sterling rallied on hopes for a more orderly Brexit.

The EU and the UK have begun a more intense round of talks, and UK and Irish prime ministers said they saw a pathway to an accord. EU Brexit negotiator Michel Barnier told member states that the UK has changed its position to now accept that the proposed replacement to the backstop cannot erect a customs border in Ireland. The UK parliament would be obliged to approve any deal hammered out by Prime Minister Boris Johnson, who lacks a majority.

Among shares in the Stoxx 600, outperformers included banks, technology, basic resources, and travel. Underperformers included food and beverage, real estate, personal and household goods, and health care. Among companies in the news, SAP, the German software giant, rose 9.1 percent after strong quarterly results and naming new co-CEOs. In M&A news, the Hong Kong Exchange formally dropped its bid to take over the London Stock Exchange after the LSE rebuffed the offer.

Asia Pacific markets

Major Asian markets advanced Friday, extending gains made earlier in the week, after President Trump announced that the first day of US-China trade talks starting Thursday had made good progress and that he would meet Chinese Deputy Premier Liu He on the second day. Investor sentiment in the region was also supported by reports Thursday that a Brexit deal might be achievable, news that officials from Korean and Japan will meet to discuss their recent trade disputes on Friday, and indications from protestors in Hong Kong that civil unrest this weekend may be less severe. The regional trade calendar was light except for Indian industrial production data published after the close of most regional markets.

The Shanghai Composite index closed up 0.9 percent on the day Friday and up 2.4 percent relative it its level before national holidays last week. Japanese shares also reacted positively to the US-China trade news, with the Nikkei and Topix indices up 1.2 percent and 0.9 percent respectively on the day, and up 1.8 percent and 1.4 percent on the week. Australia’s All Ordinaries index posted similar gains, up 0.9 percent on the day and 1.3 percent on the week. Hong Kong’s Hang Seng index outperformed on the day with a 2.3 percent gain but underperformed on the week with a 0.9 percent gain after sharp losses earlier in the week.

India's industrial production index fell 1.1 percent on the year in August, down sharply from growth of 4.3 percent in July and weaker than the consensus forecast for an increase of 1.8 percent. This is the first year-on-year fall in industrial production since June 2017 and was mainly driven by weaker output in the manufacturing sector. Officials at the Reserve Bank of India lowered their GDP forecasts for the current fiscal year at their policy meeting earlier in the month, cutting policy rates for the fifth time in a row. Ahead of inflation data next week, this weakness in industrial production will likely reinforce the bias for officials to remain in favor of further policy rate cuts in coming months.

Looking forward

Central Bank activities

 

Oct-14

Singapore

MAS Monetary Policy Statement

Oct-15

Australia

RBA Meeting Minutes

Oct-16

US

Fed Beige Book

The following indicators will be released this week...

Europe

 

 

Oct-14

Eurozone

Industrial Production (August)

Oct-15

France

CPI (September f)

 

Germany

ZEW Survey (October)

 

Switzerland

Producer and Import Price Index (September)

 

UK

Labor Market Report (September)

Oct-16

Eurozone

HICP (September)

 

Italy

CPI (September)

 

UK

CPI (September)

 

 

PPI (September)

Oct-17

Switzerland

Merchandise Trade (September)

Asia Pacific

 

 

Oct-14

China

Merchandise Trade (September)

 

India

CPI (September)

   

WPI (September)

Oct-15

China

CPI (September)

   

PPI (September)

Oct-16

NZ

CPI (Q3)

Oct-17

Singapore

Merchandise Trade (September)

Oct-18

China

Fixed Asset Investment (September)

   

GDP (Q3)

   

Industrial Production (September)

   

Retail Sales (September)

 

Japan

CPI (September)

Americas

 

 

Oct-15

US

Empire State Mfg Survey (October)

Oct-16

Canada

CPI (September)

 

US

Business Inventories (August)

   

Housing Market Index (October)

   

Retail Sales (September)

   

Treasury International Capital (August)

Oct-17

Canada

Manufacturing Sales (August)

 

US

Housing Starts (September)

   

Industrial Production (September)

   

Jobless Claims (Week of Oct. 12)

   

Philadelphia Fed Survey (October)

Global stock markets

 

Index

10 Oct 2019

11 Oct 2019

Daily Change

% Change Daily

North America

 

 

 

 

 

United States

Dow

26496.67

26816.59

319.92

1.2

 

NASDAQ

7950.78

8057.04

106.26

1.3

 

S&P 500

2938.13

2970.27

32.14

1.1

Canada

S&P/TSX Comp

16422.68

16415.16

-7.52

0.0

Europe

 

 

 

 

 

UK

FTSE 100

7186.36

7247.08

60.72

0.8

France

CAC

5569.05

5665.48

96.43

1.7

Germany

XETRA DAX

12164.2

12511.65

347.45

2.9

Italy

MIB

21756.39

22165.34

408.95

1.9

Spain

Ibex 35

9104.4

9273.8

169.40

1.9

Sweden

OMX Stockholm 30

1630.03

1653.28

23.25

1.4

Switzerland

SMI

9903.02

10017.39

114.37

1.2

Asia/Pacific

 

 

 

 

 

Australia

All Ordinaries

6662.89

6721.9

59.01

0.9

Japan

Nikkei 225

21551.98

21798.87

246.89

1.2

 

Topix

1581.42

1595.27

13.85

0.9

Hong Kong

Hang Seng

25707.93

26308.44

600.51

2.3

S. Korea

Kospi

2028.15

2044.61

16.46

0.8

Singapore

STI

3089.48

3113.97

24.49

0.8

China

Shanghai Comp

2947.71

2973.66

25.95

0.9

Taiwan

TAIEX

*

*

*

*

India

Sensex 30

37880.4

38127.08

246.68

0.7

*Markets closed

 

 

 

 

 

Note: all releases are listed in local time.

Important Information

Econoday Inc. is a US company that provides financial commentary and indicators to industry professionals. All information provided and views expressed are those of Econoday. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Past performance is not a reliable indicator of future results. The value of investments can go down as well as up and investors may not get back the amount invested.