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On 13 November 2019 - US better on Powell; Europe off; Asia down on Hong Kong unrest

Anne D Picker

Anne D Picker - Econoday

Powell comments point to steady monetary policy outlook.

US markets

US equities mostly edged up Wednesday helped Fed Chair Jerome Powell’s comment that monetary policy is likely to remain appropriate, which assured traders the Fed is open to further rate cuts if needed and won’t tighten soon. The Dow industrials rose 0.3 percent, the S&P 500 gained 0.1 percent, while the NASDAQ was fractionally lower.

Powell’s comments helped equities improve from early lows, but markets continued to suffer from uncertainty over prospects for a US-China trade deal. Investors are also facing uncertainty whether President Trump will implement threatened tariffs on European auto imports. Trump tweeted that an announcement on autos is imminent.

Among sectors, defensive shares outperformed, with utilities the best performer. Health care did well, along with consumer staples, and communications services, including Walt Disney, up 7.3 percent. Industrials, materials, and autos underperformed on trade worries.

Among companies in the news, Skyworks Solutions, a semiconductor company, fell 0.4 percent despite favorable earnings and guidance, as the firm has been rallying sharply since October. Tech Data, an electronics distributor, rose 0.5 percent on news it would be acquired by Apollo Global Management, the private equity firm. Consumer staple Energizer, the battery maker, rallied 15.1 percent after earnings and revenue were better than expected as was guidance. Mosaic, the agriculture chemicals company, fell 5.9 percent after a downgrade from JP Morgan.

In US economic news, underneath a higher-than-expected 0.4 percent rise in overall consumer price inflation, a more modest 0.2 percent October gain in core inflation hints at slack in the economy. Year-on-year consumer prices were up 1.8 percent from October last year for a 1 tenth gain and moving in the Federal Reserve's intended direction. But core prices, which exclude energy and food, moved in the other direction, down 1 tenth to 2.3 percent.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 49 cents to US$62.53, while gold rose by US$11.00 to US$1,464.70. The US dollar was lower against most major currencies. US Treasury 30-year bond yield fell 3 basis points to 2.36 percent, and the US 10-year note yield also fell 3 basis points to 1.88 percent.

European markets

Major European equities indexes slipped Tuesday on worries over US-China and US-Europe trade, and on rising concern over violence in Hong Kong. The Europe-wide STOXX 600 eased 0.3 percent, the German DAX fell 0.4 percent, the French CAC declined 0.2 percent, and the UK FTSE-100 declined 0.2 percent.

Cyclicals and trade-sensitive stocks were hurt by disappointment that President Trump did not clarify the US-China trade situation in his New York speech on Monday, and uncertainty over pending US tariffs on European autos. Banks and other firms with exposure to Hong Kong were hit, with HSBC off 2.1 percent, and Standard Chartered off 1.4 percent, as protests appeared to shut down much of Hong Kong. ABN Amro, the Dutch bank, fell 4 percent on an earnings disappointment.

Spanish stocks continued to fall after leftwing parties formed a coalition government, with the IBEX down 1.2 percent, and Spanish banks notable losers on worries over possible new taxes on the financial sector. Among sectors in the STOXX 600, banks, miners, media, and autos & parts were laggards, while defensive sectors, including food & beverages, health care, and real estate outperformed.

In economic news, Eurozone goods production was stronger than expected in September. However, a 0.1 percent monthly rise in output (ex-construction) was not enough to prevent the sector from sliding into recession as a 0.9 percent quarterly decline followed a 0.6 percent contraction in the second quarter. In a separate report, UK consumer prices were softer than expected in October. A 0.2 percent monthly fall put the annual inflation rate at 1.5 percent, down 0.2 percentage points versus its September outturn and its lowest reading in nearly three years.

Asia Pacific markets

Asian markets dropped Wednesday, in some cases sharply, with ongoing civil unrest in Hong Kong weighing on investor sentiment across the region. Hong Kong’s Hang Seng index posted the biggest fall, down 1.8 percent, as protesters blocked the streets around the city centre for the third day in a row. Japanese shares also sold off, with the Nikkei and Topix indices falling 0.9 percent and 0.5 percent respectively after automaker Nissan reported a sharp drop in quarterly profits and lowered its guidance for full-year profits. The Shanghai Composite index fell 0.3 percent on the day while Australia’s All Ordinaries index fell 0.8 percent.

The Reserve Bank of New Zealand surprised markets at its policy meeting Wednesday, leaving its benchmark rate unchanged at a record low of 1.00 percent, in contrast to the consensus forecast for a cut of 25 basis points. This rate was cut by 50 basis points by the RBNZ's meeting in August and by 25 basis points in May. Although headline inflation is below the mid-point of the RBNZ’s target range and economic growth is expected to remain subdued for the rest of 2019, officials believe that previous rate cuts, along with a weaker currency and stronger government spending, will help push inflation and growth higher in 2020 and beyond. Reflecting this assessment, officials decided that additional policy easing was not necessary at today’s meeting but repeated that they are prepared to cut rates further if required.

Australia's wage price index rose 0.5 percent on the quarter in the three months to September, down slightly from 0.6 percent in the three months to March, while year-on-year growth in the index moderated from 2.3 percent to 2.2 percent. In their quarterly Statement on Monetary Policy published last week, officials at the Reserve Bank of Australia argued that it was "increasingly clear" that lower unemployment is needed to generate wages growth consistent with achieving their inflation target. These considerations, they noted, have pointed to the case for further policy easing in recent months and also suggest that the RBA's bias remains in favour of further policy easing in the months ahead.

India's consumer price index increased by 4.62 percent on the year in October, up sharply from 3.99 percent in September and 3.28 percent in August. Headline inflation has been trending higher in recent months and is now above the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent. As in September, the increase in headline inflation in October was mainly driven by stronger growth in food prices, up 6.96 percent on the year after increasing 4.70 percent previously. Although the increase in headline inflation in the last two months has mainly been driven by food prices rather than broader price pressures, with inflation now above the mid-point of their target range, officials at the RBI may consider it appropriate, after cutting rates in recent months, to leave policy settings on hold at their next policy meeting scheduled for early December.

Looking forward

On Thursday in Asia/Pacific, the following data are scheduled: Japanese GDP, Australian labor force survey, Chinese fixed asset investment, Chinese industrial production, Chinese retail sales, and Indian WPI. In Europe, the following are due: Eurozone GDP flash, French ILO employment, French CPI. Swiss producer and import prices, and UK retail sales. In North America, Fed Chair Jay Powell will speak again on Capitol Hill, plus US jobless claims and PPI-FD data will be released.

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Note: all releases are listed in local time.

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