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On 17 October 2019 - US, Europe slightly better on Brexit, trade news; Asia mixed

Anne D Picker

Anne D Picker - Econoday

Quarterly earnings mostly well-received

US markets

US equities gained Thursday on a possible end to the GM strike, somewhat hopeful Brexit news, positive US-China talk, and upbeat corporate earnings. The Dow industrials edged 0.1 percent higher, the S&P 500 up 0.3 percent, and the NASDAQ up 0.4 percent.

Pending final union approval, the United Auto Workers and General Motors reached a tentative contract that would allow the company to close several Midwest factories in exchange for pay raises, lump payments and an $11,000 ratification bonus.

The strike started this time last month and its effects were evident in the September industrial production report which showed a deeper-than-expected monthly decline of 0.4 percent with motor vehicle production down 4.2 percent.

On Brexit, UK and EU officials reached an accord but it remained doubtful whether Parliament would approve it, as terms appeared to be basically the same as past proposals that lawmakers rejected. In US-China news, a Chinese Ministry of Commerce spokesman said Chinese officials are working on the text of a trade accord, and they want to reach a deal as soon as possible. US officials talked up prospects for agreement, with White House economic adviser Larry Kudlow saying he sees momentum for a deal that would include cuts in Chinese non-tariff trade barriers, in addition to Chinese purchases of US agriculture goods.

Among sectors, industrials, materials, and financials were the leaders, while utilities, consumer staples, and energy lagged. Among companies in focus, Netflix rose 2.5 percent on an earnings beat, but it missed on subscriptions, and the streaming video leader conceded competition from Apple and Walt Disney would hurt. IBM dropped 5.5 percent, and was a big drag on the Dow industrials, after it beat earnings expectations but missed on revenues. Despite missing earnings and a downbeat outlook, aluminum producer Alcoa jumped 6 percent after also announcing a $1 billion restructuring.

In contrast to Alcoa's outlook and also the industrial production report, the Philadelphia Fed's headline manufacturing index showed substantial strength with new orders and backlog orders as well as employment in sharp acceleration. In other data, housing starts and permits missed expectations at the headline levels but details on single-family homes showed improvement.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$0.88 to $59.94 while gold rose US$1.70 to US$1,497.00. The US dollar fell against most major currencies. The US Treasury 30-year bond yield rose 1 basis points to 2.24 percent while the 10-year note yield was up 1 basis point at 1.75 percent.

European markets

European equities were mixed Thursday as news of an EU-UK Brexit pact was met with uncertainty whether Parliament will approve the deal. UK's FTSE edged only 0.2 percent higher while Germany's Dax slipped 0.1 percent and France's CAC down 0.4 percent.

Negotiators for the UK and the EU agreed to a new Brexit deal that paves the way for the UK to leave the Union by Oct. 31. However, terms of the deal have already been rejected by Northern Ireland’s Democratic Unionist Party. Without DUP support, Prime Minister Boris Johnson may not have the numbers to get Parliament’s approval.

Among shares in the Stoxx 600, outperformers included real estate, banks, insurance, and personal & household goods. Underperformers included food & beverage, technology, media, and utilities.

Among companies in the news, Ericsson, the Swedish telecom, was a leader, up 6.2 percent, on an earnings beat and improved guidance. Nokia, the Finnish telecom, rallied 2.0 percent on both the Ericsson news and Brexit deal hopes. Pernod Ricard, the French drinks company, was off 4.2 percent after missing its sales projection.

In economic news, UK retailers had a slightly disappointing September. Sales volumes were flat on the month following a 0.3 percent fall in August. However, positive base effects saw annual growth climb from 2.6 percent to 3.1 percent, a 3-month high. Excluding auto fuel, purchases rose 0.2 percent versus August, reversing most of that month's 0.3 percent decline and lifting the yearly change by 0.8 percentage points to 3.0 percent.

Asia Pacific markets

Major Asian markets posted mixed results Thursday, with uncertainty about the near-term outlook for Brexit negotiations and US-China trade talks providing no clear direction to investor sentiment. Hong Kong’s Hang Seng index was one of the strongest performers, up 0.7 percent, with property shares boosted after the government announced measures to ease housing shortages and restore business confidence in response to recent civil unrest. The Shanghai Composite index and Japan’s Nikkei index both closed slightly lower while the Topix index fell 0.5 percent. Australia’s All Ordinaries index fell 0.8 percent on the day after the release of labour market data. 

Australia's labour market saw an increase of 14,700 in the number of employed persons in September, down from 37,900 in August. The unemployment rate fell from 5.3 percent in August, to 5.2 percent, while the participation rate fell slightly from 66.2 percent to 66.1 percent. With headline employment growth slowing and the unemployment rate still above 5.0 percent in September, officials at the Reserve Bank of Australia are likely to maintain their view that there remains significant spare capacity in the labour market. This assessment has been a significant factor driving their decision to lower policy rates in recent months, including at their last meeting at the start of October and suggests that a further rate reduction will be considered in coming months.

Singapore's non-oil domestic exports fell 8.1 percent on the year in September after falling a revised 9.0 percent in August. These exports have now fallen on the year for six months in a row and for nine out of the last ten months, broadly in line with other regional data showing weakness in trade flows associated with global trade disputes. Demand across Singapore's top ten trading partners improved in some cases but was generally weak, with year-on-year declines in exports to the US, Japan, and the European Union. Total imports fell 4.7 percent on the year after falling 6.4 percent previously.

Looking forward

On Friday in Asia/Pacific, Chinese fixed-asset investment, GDP, industrial production, and retail sales figures are due, plus Japanese CPI data. In North America, it’s US leading indicators.

Global stock markets

 

Index

17 Oct 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

27025.88

23.90

0.1

 

NASDAQ

8156.85

32.67

0.4

 

S&P 500

2997.95

8.26

0.3

Canada

S&P/TSX Comp

16426.3

-0.88

0.0

 

 

 

 

 

Europe

 

 

 

 

UK

FTSE 100

7182.32

14.37

0.2

France

CAC

5673.07

-23.83

-0.4

Germany

XETRA DAX

12654.95

-15.16

-0.1

Italy

MIB

22375.67

-52.42

-0.2

Spain

Ibex 35

9340

-46.70

-0.5

Sweden

OMX Stockholm 30

1682.87

5.68

0.3

Switzerland

SMI

10008.94

-23.55

-0.2

 

 

 

 

 

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6791.52

-51.70

-0.8

Japan

Nikkei 225

22451.86

-21.06

-0.1

 

Topix

1624.16

-7.35

-0.5

Hong Kong

Hang Seng

26848.49

184.21

0.7

S. Korea

Kospi

2077.94

-4.89

-0.2

Singapore

STI

3126.14

-8.57

-0.3

China

Shanghai Comp

2977.33

-1.38

-0.1

Taiwan

TAIEX

11186.88

24.05

0.2

India

Sensex 30

39052.06

453.07

1.2

Note: all releases are listed in local time.

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