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On 15 February 2019 - US stocks gain as government shutdown averted and US-China trade talks make progress

Anne D Picker

Anne D Picker - Econoday

European Central Bank hints at additional policy support; Asian data subdued.

US markets

US stocks finished the week with strong gains after President Trump approved legislation averting another government shutdown and noted progress in US-China trade talks. The Dow closed up 1.7 percent on the day and 3.1 percent on the week, the S&P closed up 1.1 percent on the day and 2.5 percent on the week, and the Nasdaq closed up 0.6 percent on the day and 2.4 percent on the week.

President Trump Friday signed legislation extending government funding through September and declared a national emergency in an effort to secure the funds necessary to meet his border security objectives. The Administration plans to divert US$6.7 billion in federal funds from the US Treasury forfeiture fund, a counter-narcotics program, and the military construction budget. Democratic congressional leaders and some state governments have challenged the constitutional validity of the president’s actions. 

Industrial production data showed output fell 0.6 percent on the month in January after an increase of 0.1 percent in January, weaker than the consensus forecast range. Vehicles and business equipment both fell on the month after solid gains previously, contributing to a fall in manufacturing production of 0.9 percent after December’s 0.8 percent gain. Modest gains in mining and utilities output partly offset the decline in manufacturing production. The University of Michigan’s consumer survey, also released Friday, showed a rebound in confidence in February after weakness associated with the government shutdown in January, while its measures of inflation expectations grew more subdued.

These data reflect observations at the close of trading Friday. Gold closed up US$8.20 to US$1,322.10 while dated Brent spot crude rose US$1.68 to US$66.25. The US dollar fell against the pound, the Australian dollar, and the Canadian dollar, but was steady against other major currencies. The yield on the US Treasury 30 year bond fell 2 basis points to 2.99 percent while the 10 year note rose 1 basis point to 2.66 percent.

European markets

Major European markets closed higher Friday with sentiment boosted by signs a shutdown of the US government would be avoided, reports of progress on US-China trade talks, and comments from a senior official from the European Central Bank indicating more policy support may be forthcoming. The FTSE advanced 0.6 percent on the day and 2.3 percent on the week, the CAC gained 1.8 percent on the day and 3.9 percent on the week, and the DAX rose 1.9 percent on the day and 3.6 percent on the week.

Shares in regional banks gained and the euro weakened after Benoit Coeure, a member of the ECB’s Executive Board, indicated that additional long-term loans could be provided to banks. Acknowledging that the slowdown in the Eurozone economy is “stronger and broader” and inflation weaker than anticipated, Coure advised that officials are considering additional loans to regional banks in order to maintain current liquidity conditions once existing loans begin to mature. He stressed, however, that such a measure would only be implemented to provide policy support to the economy, not to assist individual banks to meet capital requirements.

Eurozone trade data showed a small narrowing in the trade surplus from €15.8 billion in November to €15.6 billion in December, with exports down 0.1 percent on the month and imports unchanged. The quarterly trade surplus for the three months to December was €45.1 billion, up around 9.0 percent from the previous quarter, largely reflecting the impact of lower oil prices, while the annual trade surplus for 2018 was €192.4 billion, down 17.3 percent from 2017 levels. UK retail sales data were surprisingly strong despite ongoing Brexit uncertainty, with volumes up 1.0 percent on the month in January after dropping 0.7 percent in December and year-on-year growth accelerating from 3.1 percent to 4.2 percent, its highest since December 2016.

Asia Pacific Markets

Most Asian markets lost ground Friday, with weak US retail sales data published earlier and subdued Chinese inflation data weighing on investor sentiment. The Shanghai composite index fell 1.4 percent on the day and closed the week up 2.5 percent compared with pre-holiday levels. Japan’s Nikkei index closed 1.1 percent down on the day and 2.8 percent up on the week, while the Topix closed 0.8 percent down on the day and 2.5 percent on the week. Australia’s All Ordinaries index outperformed on the day with a small increase of 0.1 percent but underperformed on the week with a gain of just 0.2 percent.

US-China trade talks in Beijing concluded Friday, with a further round of negotiations now scheduled to take place in Washington in the coming week. President Trump and Chinese state media noted progress over the last week but few details about the terms of any agreement have been made public. US tariffs on Chinese imports are scheduled to increase from 10 percent to 25 percent at the start of March, but President Trump again indicated he may delay this increase and possibly meet with President Xi sometime next month to finalise an agreement.

Chinese consumer price inflation fell for a third consecutive month from 1.9 percent in December to 1.7 percent in January, its lowest level since January 2018. Producer price inflation fell more sharply, dropping from 0.9 percent in December to 0.1 percent in January, its lowest level since August 2016. Food, transport and communication prices weighed on consumer inflation, while weaker increases in raw materials and energy prices largely drove the decline in producer inflation. Chinese bank lending increased sharply in January, as per the normal seasonal pattern, but year-on-year growth in outstanding loans fell slightly. 

Revised Singapore GDP data confirmed a slowdown in economic growth from 3.5 percent in the three months to September to 1.9 percent in the three months to December, with annual growth falling from 3.9 percent in 2017 to 3.2 percent in 2018. For Hong Kong, Financial Secretary Paul Chan advised that growth slowed from 2.9 percent in the three months to September to “less than 1.5 percent” in the three months to December, largely due to the impact of weaker exports.

Looking forward

Central Bank activities

Feb 20

US

FOMC Minutes

Feb 21

Eurozone

ECB Minutes

The following indicators will be released this week...

Europe

Feb 19

UK

Labour Market Report (January)

 

Germany

Zew Survey (February)

Feb 20

Eurozone

EC Consumer Confidence Flash (February)

Feb 21

Eurozone

PMI Composite Flash (February)

 

France

Consumer Price Index (January)

 

France

PMI Composite Flash (February)

 

Germany

PMI Composite Flash (February)

 

Italy

Consumer Price Index (January)

Feb 22

Eurozone

HICP (January)

 

Germany

GDP (Fourth Quarter)

 

Germany

Ifo Survey (February)

Asia Pacific

Feb 19

Japan

Merchandise Trade (January)

Feb 20

Australia

Labour Force Survey (January)

Feb 21

China

House Price Index (January)

 

Japan

Consumer Price Index (January)

Americas

Feb 20

US

Housing Starts (December)

Feb 21

US

Existing Home Sales (January)

Feb 22

Canada

Retail Sales (December)

Global Stock Markets

 

Index

Feb 15 2019

Daily Change

% Change Daily

North America

United States

Dow

25883.25

443.86

1.7

 

NASDAQ

7472.41

45.46

0.6

 

S&P 500

2775.60

29.87

1.1

Canada

S&P/TSX Comp

15838.24

142.26

0.9

Europe

UK

FTSE 100

7236.68

39.67

0.6

France

CAC

5153.19

90.67

1.8

Germany

XETRA DAX

11299.80

210.01

1.9

Italy

MIB

20212.34

377.38

1.9

Spain

Ibex 35

9123.20

170.70

1.9

Sweden

OMX Stockholm 30

1583.82

21.46

1.4

Switzerland

SMI

9242.12

99.41

1.1

Asia/Pacific

Australia

All Ordinaries

6148.58

8.99

0.1

Japan

Nikkei 225

20900.63

-239.08

-1.1

 

Topix

1577.29

-12.52

-0.8

Hong Kong

Hang Seng

27900.84

-531.21

-1.9

S. Korea

Kospi

2196.09

-29.76

-1.3

Singapore

STI

3239.74

-13.42

-0.4

China

Shanghai Comp

2682.39

-37.31

-1.4

Taiwan

TAIEX

10064.78

-24.23

-0.2

India

Sensex 30

35808.95

-67.27

-0.2

Source: Haver Analytics

Note: all releases are listed in local time.

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