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On 14 February 2019 - US stocks mixed as retail sales data disappoint and President Trump to call for national emergency

Anne D Picker

Anne D Picker - Econoday

UK parliament rejects government’s Brexit strategy; reports suggest US tariff hikes may be delayed.

US markets

US stocks were mixed Thursday with weak retail sales data followed by news that President Trump will approve a deal to avert a government shutdown but declare a national emergency to fund additional border security measures. The Dow closed 0.4 percent lower, the S&P fell 0.3 percent, and the Nasdaq finished up 0.1 percent. 

Congress is expected late Thursday to pass legislation that will extend funding for the government and avert another shutdown. The deal will provide funding for the Department of Homeland Security and other federal agencies through to September but provides an amount of funds for border security measures well short of that sought by the Administration. Senate majority leader Mitch McConnell announced late in the session that President Trump would approve the deal but would declare a state of national emergency in order to secure the funds necessary to meet his border security objectives.

Retail sales data were much weaker than expected in December, with headline sales down 1.2 percent on the month for the biggest fall since September 2009 and down 2.3 percent on the year. Lower gasoline prices contributed to the headline fall, but most major categories of spending showed weaker growth, with autos an exception. Excluding autos, sales fell 1.8 percent on the month. Concerns about the government shutdown that started in December may have contributed to this weakness, despite ongoing strength in the labour market. Jobless claims data for the February 9 week were moderately higher and suggest payroll gains this month may be smaller than in January.

Federal Reserve Governor Lael Brainard spoke to reporters Thursday and argued that downside risks to the growth outlook had intensified in recent months while recent labour market strength had not put significant upward pressure on inflation, reinforcing the case for officials to be patient before hiking policy rates again. She also expressed support for the Federal Reserve to complete the normalization of its balance sheet by the end of the year.

Amazon closed lower Thursday after announcing it would not proceed with plans to build a major headquarters in New York City after opposition from some residents and criticism of tax incentives provided by the state and city governments. The company also announced that it does not plan to build another headquarters elsewhere for now but will expand in existing centres.

These data reflect observations at 4:00 PM US ET. Gold closed up US$0.40 to US$1,315.50 while dated Brent spot crude rose US$1.63 to US$64.65. The US dollar advanced against the yen, the Swiss franc, the euro and the Australian dollar while losing ground against the pound, the yuan, and the Canadian dollar. The yield on the US Treasury 30 year bond fell 2 basis points to 3.01 percent while the 10 year note fell 4 basis points to 2.66 percent.

European markets

Major European markets were also mixed Thursday, with the FTSE up 0.1 percent but the CAC and DAX dropping 0.2 percent and 0.7 percent respectively. Underperformance in the German market followed weak economic growth data.

Revised Eurozone GDP estimates were unchanged from initial estimates, with GDP up 0.2 percent on the quarter and 1.2 percent on the year in the three months to December. German data, however, showed GDP was flat on the quarter in the three months to December after falling 0.2 percent previously, with year-on-year growth there slowing from 1.1 percent to 0.6 percent. This is the first time since late 2012/early 2013 that the German economy has not expanded for two successive quarters. French data were more positive, showing a fall in the unemployment rate from 8.8 percent in the three months to September to 8.5 percent in the three months to December.

The UK parliament refused to endorse the government’s Brexit strategy in a vote Thursday, with the government losing the vote 303-258. Pro-Brexit Conservative legislators abstained, reflecting their view that the government must retain the option to exit the European Union without a deal if no acceptable deal can be reached. A government spokesman told reporters after the vote that Prime Minister Theresa May will continue to seek concessions from the EU in order to gain parliament’s support for a Brexit deal.

Airbus increased to a record-high Thursday after it posted better-than-expected fourth-quarter earnings, with revenues and profits up strongly from the same period twelve months earlier. The plane manufacturer expects to deliver around 890 aircraft this year but announced that it will end production of A380 jets, the largest passenger planes in the world, in response to insufficient orders from its largest customer for this model, Emirates Airlines, and a lack of demand from other airlines.

Asia Pacific Markets

Price action was very limited across most Asian markets Thursday. Japan’s Nikkei and Topix indices both closed flat on the day, as did Australia’s All Ordinaries index and Taiwan’s TAIEX index. Moves were also subdued in China and Hong Kong, with Singapore’s STI index up moderately and India’s Sensex index down moderately. Korea’s Kospi index was the main exception, closing up 1.1 percent.

US-China trade talks continued Thursday in Beijing but public statements on their progress have so far been limited. Chinese trade data were also published Thursday and showed China’s trade surplus narrowed US$57.1 billion in December to US$39.16 billion in January. Exports and imports growth both strengthened in January, likely reflecting to some extent the impact of the timing of lunar new year holidays. On a bilateral basis, China's trade surplus with the United States narrowed from US$29.87 billion in December to US$27.30 billion in January, but was still well above the surplus of US$21.89 billion recorded in January 2018. US tariffs on Chinese imports are scheduled to increase from 10 percent to 25 percent at the start of march, but reports suggest President Trump is considering a delay to this increase.

Preliminary data show Japan’s economy rebounded in the three months to December after a disaster-related contraction in the three months to September. GDP grew an annualised 1.4 percent on the quarter after falling 2.5 percent previously, with consumer spending, business investment, and public spending all making solid contributions to headline growth. Officials at the Bank of Japan forecast growth of 0.9 percent for this fiscal year and the next.

Australian asset manager AMP fell sharply Thursday after it reported profits of just A$28 million in 2018, below the A$30 million guidance it provided last month and a fraction of the A$848 million in profits it booked in 2017. The company’s wealth management business saw net cash outflows of almost A$4 billion in 2018 after net cash inflows of A$931 million in 2017, with clients withdrawing funds in large numbers after a government inquiry into the financial sector showed the firm had overcharged clients and misled regulators. The company advised that outflows are continuing in the new year and provide weak guidance for 2019 performance.

Looking forward

The immediate focus remains on political developments in Washington as Congress votes on legislation to extend government finding, while any public statements after US-China trade talks conclude in Beijing Friday will also be closely followed. Singapore GDP and Chinese inflation data are scheduled for release shortly, ahead of UK retail sales and Eurozone trade data. Industrial production data will be the highlight of the US data calendar Friday.

Global Stock Markets



Feb 14 2019

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Source: Haver Analytics

Note: all releases are listed in local time.

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