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On 14 August 2019 - Global shares: US, Europe plunge on recession talk; Asia up on trade hope

Anne D Picker

Anne D Picker - Econoday

Fixed income rally, geopolitical worries hurt risk assets in Europe, US hours.

US markets

Major US stock indexes tanked Wednesday and US Treasuries rallied in a renewed flight from risk spurred by weak Asian and European economic data, worries over US-China trade and geopolitical concerns. The Dow industrials fell 3.0 percent, the S&P 500 dropped 3.1 percent, and the NASDAQ dropped 2.9 percent.

Investors focused on a batch of weak Chinese economic reports for July, and soft Eurozone industrial production and German GDP data that added to the global recession narrative. Hopes for US-China trade talks that spurred a rally Tuesday receded on Wednesday as analysts noted trade tensions remain, along with fear over the Hong Kong political crisis, Brexit, and Italy’s political crisis.

The US Treasury 2-year/10-year yield curve inverted briefly Wednesday, typically a recession signal, as Treasuries rallied, gold prices rose, and oil prices dropped.  President Trump added to the unease late in the day by tweeting about the "crazy inverted yield curve" and repeated his charge that Fed Chair Jay Powell is "clueless," adding, "China is not our problem,” but rather “our problem is with the Fed."

Equities dropped across the board. Energy shares were among the worst performers, with oil prices down sharply. Financials sold off on recession worries and the low interest rate outlook. Consumer discretionary shares were hurt by a weak start to quarterly earnings for the retail sector with Macy’s off 12.9 percent after a big Q2 earnings miss and lowering guidance.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude fell US$1.93 to US$59.32, while gold rose US$10.20 to US$1,525.40. The US dollar rose against most major currencies, though it fell vs. the yen in the flight from risk. The yield on the US Treasury 30-year bond yield was plunged 13 basis points to 2.03 percent while the yield on the 10-year note fell 11 basis points to 1.58 percent.

 

European markets

European equities slumped Wednesday as global growth worries returned, with soft German and Eurozone economic reports adding to the gloom. The Europe-wide STOXX 600 fell 1.7 percent, the German DAX was off 2.2 percent, the French CAC fell 2.1 percent, and the UK FTSE 100 fell 1.4 percent.

The latest selloff followed a rebound in risk assets on Tuesday on more propitious US-China trade headlines. Yet market sentiment reversed again to the downside Wednesday amid continuing concerns over trade tensions, while weak Chinese and European economic data spurred another big fixed-income rally featuring an inversion in the 2-year/10-year yield spread for US and UK government debt. Oil prices dropped and gold rose.

Trade-sensitive shares in technology, autos and parts, chemicals, banks, and basic resources led the selloff as the market pared risk assets. Food and beverage shares outperformed, along with real estate and utilities, but these defensive sectors were off as well.

Earnings were in focus with UK infrastructure company Balfour Beatty up 9.3 percent, and Admiral Group, a UK insurance company, up 4.1 percent on an earnings beats. German media firm Axel Springer was down 0.4 percent as falling ad revenue hurt earnings and revenues. D/S Norden, a Danish shipping company, dropped 12.2 percent on an earnings miss.

In economic news, Eurozone industrial goods production fell more sharply than expected in June. Following a 0.9 percent monthly rise in May, output (ex-construction) fell 1.6 percent, pulling down annual growth from minus 0.5 percent to minus 2.6 percent. June's monthly production decline was broad-based and led by capital goods (minus 4.0 percent). Meanwhile, German flash GDP data showed the country fell into marginal contraction in the second quarter, as expected. A provisional 0.1 percent quarterly decline in total output followed a 0.4 percent quarterly increase previously.

Asia Pacific markets

Asian markets closed higher Wednesday, with the impact of weak Chinese data outweighed by news that US trade authorities will delay the imposition of a new round of tariffs on some Chinese goods. Japanese shares were among the strongest in the region after better-than-expected machinery orders data, with the Nikkei and Topix indices advancing 1.0 percent and 0.9 percent respectively. Both the Shanghai Composite index and Australia’s All Ordinaries index closed up 0.4 percent, while Hong Kong’s Hang Seng index underperformed with a small 0.1 percent gain, with ongoing civil unrest still weighing on sentiment.

Chinese monthly data published Wednesday showed renewed weakness in July after some improvement in June, suggesting that the US-China trade dispute is having a negative impact on economic activity. Industrial production, in particular, slowed sharply, with year-on-year growth slumping from 6.3 percent in June to 4.8 percent in July, well below the consensus forecast of 4.8 percent, and the weakest growth since 2012. Textiles, chemicals, general equipment, electric machinery, communication equipment and steel products were among the parts of the manufacturing sector that recorded weaker growth in July, offset by a smaller drop in auto production. Retail sales year-on-year growth also slowed from 9.8 percent to 7.6 percent, partly due to the impact of strong auto sales in June prompted by the upcoming introduction of new emission standards for vehicles, but also reflecting weaker sales for other major components. Fixed asset investment growth was relatively steady, up 5.7 percent on the year in July after increasing 5.8 percent in June.

Japanese machinery orders data showed a strong rebound in June of 13.9 percent after month-on-month declines in April and May. This was enough to drive an increase of 7.5 percent on the quarter in the three months of June after a fall of 3.2 percent in the three months to March, broadly in line with GDP data released last week that showed stronger growth in private non-residential investment.  Officials, however, expect orders will fall by 6.1 percent on the quarter in the three months to September.

Looking forward

On Thursday in Asia/Pacific, the Australian labor force survey and the Chinese house price index reports are due. In Europe, Swiss producer and import prices, and UK retail sales reports are scheduled. In North America, the following will be released: business inventories, jobless claims, Empire State manufacturing survey, Housing Market Index, industrial production, Philadelphia Fed Business Outlook Survey, productivity and costs, and retail sales.

Global stock markets

 

Index

14 Aug 2014

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

25479.42

-800.49

-3.1

 

NASDAQ

7773.94

-242.42

-3.0

 

S&P 500

2840.6

-85.72

-2.9

Canada

S&P/TSX Comp

16045.94

-304.90

-1.9

Europe

 

 

 

 

UK

FTSE 100

7147.88

-103.02

-1.4

France

CAC

5251.3

-111.77

-2.1

Germany

XETRA DAX

11492.66

-257.47

-2.2

Italy

MIB

20020.28

-519.15

-2.5

Spain

Ibex 35

8522.7

-172.40

-2.0

Sweden

OMX Stockholm 30

1500.06

-38.47

-2.5

Switzerland

SMI

9628.48

-157.76

-1.6

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6677.51

29.43

0.4

Japan

Nikkei 225

20655.13

199.69

1.0

 

Topix

1499.5

12.93

0.9

Hong Kong

Hang Seng

25302.28

20.98

0.1

S. Korea

Kospi

1938.37

12.54

0.7

Singapore

STI

3147.6

0.87

0.0

China

Shanghai Comp

2808

11.66

0.4

Taiwan

TAIEX

10427.73

65.07

0.6

India

Sensex 30

37311.53

353.37

1.0

*Markets closed

 

 

 

Note: all releases are listed in local time.

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