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On 14 November 2019 - US flat on trade news, mixed earnings; Europe down; Asia mixed

Anne D Picker

Anne D Picker - Econoday

US Treasuries better on risk-off mood amid trade uncertainty, sluggish data.

US markets

US equities were flat but risk-off sentiment prevailed amid mixed earnings results, bearish US-China trade headlines, and sluggish global economic data. The Dow industrial average and the NASDAQ were unchanged while the S&P 500 rose 0.1 percent.

Among companies in the news, Walmart, the Dow member, rose 0.8 percent on an earnings and same-store sales beat and after raising its 2019 earnings outlook. On the negative side, tech stocks were hit as Cisco Systems, the networking leader, dropped 7.3 percent after its earnings and revenue guidance missed expectations. Cisco told analysts that economic uncertainty is hurting its business.

US-China trade news contributed to the market’s uncertainty and malaise, on reports suggesting trade talks are at an impasse over China’s demand for tariff relief, and US frustration that China has not offered sufficient concessions or commitments on agriculture purchases. Weak Chinese economic data contributed to risk-off sentiment.

Among sectors, real estate rose on the risk-off sentiment. Materials outperformed, led by precious metals and chemicals. Communications services improved on strength in internet and media sectors. On the downside, technology stocks underperformed on the Cisco news. Health care stocks suffered from weakness in pharma and biotech. Energy stocks lagged as oil prices declined.

In US economic news, initial jobless claims rose an unexpectedly sharp 14,000 to 225,000 in the November 9 week, but the 225,000 level is still only 10,000 above the very low 215,000 trend for initial claims. On the inflation front, producer prices rose 0.4 percent in October with the year-on-year rate at 1.1 percent, a little higher than expected. These are still very tame readings, underscored by the ex-energy ex-food core which rose 0.3 percent on the month for yearly inflation at an as-expected 1.6 percent and down from September's 2.0 percent.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 29 cents to US$62.34, while gold rose by US$6.00 to US$1,470.70. The US dollar fell against most major currencies. US Treasury 30-year bond yield fell 6 basis points to 2.31 percent, and the US 10-year note yield fell 6 basis points to 1.82 percent.

European markets

Major European equities indexes slipped Thursday, with soft economic data, trade uncertainty, and a profits warning from German automaker Daimler weighing on the market. The Europe-wide STOXX 600 and the German DAX both fell 0.4 percent, the French CAC eased 0.1 percent, and the UK FTSE-100 fell 0.8 percent.

Risk appetite was hurt by disappointing Chinese economic data, including soft industrial production figures that were linked to the US-China trade war, along with sluggish German growth figures. Markets were restrained by headlines on US-China trade pointing to sticking points holding up an interim trade pact.

UK stocks underperformed on a selloff in 3i, the private equity company, which fell 4.6 percent after warning of a weakening business environment, and the export-heavy FTSE-100 was hit by a stronger pound amid rising expectations for a Conservative Party victory in upcoming elections.

Auto stocks were hurt by a warning from Daimler, down 4.4 percent, that new auto emissions standards would hurt its profits in 2020 and 2021. Autos have suffered from uncertainty as the market awaits President Trump’s pending decision on imposing tariffs on European autos, and from weakening demand in key markets including China.

In addition to autos, underperformers included telecom, health care, and oil & gas. Outperformers included construction & materials, real estate, and personal & household goods.

In economic news, Germany, Europe’s largest economy, avoided recession last quarter but not by much. Real GDP provisionally expanded just 0.1 percent on the quarter following a slightly steeper revised 0.2 percent contraction (was minus 0.1 percent) in the previous period. Annual workday adjusted growth actually picked up from 0.3 percent to 0.5 percent but this reflected favorable base effects. Unadjusted, the yearly change in total output was 1.0 percent, up from minus 0.1 percent last time. In a separate report, UK retail sales disappointed in October. Following an unrevised flat reading in September, volumes unexpectedly dipped 0.1 percent on the month, the third month in a row that they have failed to register a rise.

Asia Pacific markets

Asian markets again posted mixed results Thursday with individual markets reacting to a busy regional data calendar. The Shanghai Composite index closed the day little changed, up 0.2 percent, with the impact of weaker-than-expected data on investment sentiment perhaps offset by hopes that a potential US-China trade deal will provide support to the Chinese economy in the months ahead. Australia’s All Ordinaries index advanced 0.5 percent while the Australian dollar sold off against other major currencies as investors priced in a greater chance of more rate cuts after subdued labor market data.

Japanese markets closed lower after the release of data showing a drop in economic growth, with the Nikkei and Topix indices down 0.8 percent and 0.9 percent respectively. Meanwhile, ongoing concerns about civil unrest in Hong Kong put further downward pressure on the Hang Seng index, down 0.9 percent on the day.

Chinese data published Thursday showed weaker-than-expected growth in key activity indicators in October. US-China trade tensions remain a major drag on the Chinese economy, with a resolution of those tensions likely to be the key to a significant recovery. Industrial production advanced 4.7 percent on the year in October, down sharply from 5.8 percent in September and well below the consensus forecast of 5.4 percent, mainly reflecting weaker growth in the manufacturing and mining sectors. Retail sales grew 7.2 percent on the year, down from 7.8 percent previously and weaker than the consensus forecast of 7.8, with communication equipment the only category of spending to record stronger growth. Fixed asset investment grew 5.2 percent year-to-date, moderating from 5.4 percent previously and below the consensus forecast of 5.4 percent.

Australia's labour market saw a decline of 19,000 in the number of employed persons in September, weakening sharply from a downwardly revised increase of 12,500 in August and well below the consensus forecast for an increase of 18,000. The unemployment rate was unchanged at 5.3 percent, matching the consensus forecast. These data will likely reinforce the view of officials at the Reserve Bank of Australia that there remains significant spare capacity in the labour market and will likely support the chances that a further rate reduction will be considered in coming months.

Preliminary estimates show Japan's economy grew 0.1 percent on the quarter in the three months to September, down from revised growth of 0.4 percent in the three months to June and below the consensus forecast for an increase of 0.2 percent. This decline in headline GDP growth was largely driven by weaker household consumption, up 0.3 percent on the quarter after expanding 0.6 percent previously. Officials noted that the boost to consumer spending ahead of the increase in consumption tax rates at the start of October was smaller than that seen when tax rates were increased previously in 2014. Net exports and government spending were also weaker, offset by stronger get growth in investment spending.

Looking forward

On Friday in Asia/Pacific, the following data are scheduled: Chinese house price index, Hong Kong GDP, Indian merchandise trade, and Singapore GDP. In Europe, the following are due: Eurozone HICP, Eurozone merchandise trade, and Italian CPI. In North America, data releases are scheduled for the following: retail sales, industrial production, import and export prices, business inventories, and Empire State manufacturing.

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Note: all releases are listed in local time.

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