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On 18 September 2019 - US flat to weaker on Fed stance; Europe, Asia steady

Anne D Picker

Anne D Picker - Econoday

Divided Fed leaves market uncertain on rate outlook.

US markets

US equities ended flat to weaker Wednesday but up from their worst levels hit immediately after the Federal Reserve, though cutting rates as expected, left markets uncertain about prospects for more rate cuts. The Dow industrials ended up 0.1 percent, the S&P 500 was basically flat at up 0.03 percent, and the NASDAQ eased 0.1 percent. The Russell 2000 fell 0.6 percent.

The Fed voted 7-3 to cut the federal funds rate as expected by 25 basis points, and also cut the rate it pays banks on excess reserves by 30 basis points, in part presumably to address liquidity issues in the overnight funds market.  In a bearish surprise for risk assets, the median view among policy-makers calls for no further rate cuts in 2019; the range of predictions was wide, with seven of the 17 FOMC members expecting one more 25 basis point rate cut, five seeing no further cuts, and five seeing a rate hike back above 2.0 percent. The economic assessment was mostly little changed though on the downside, business spending was downgraded from "soft" to having "weakened," with the word "exports" added and also described as having weakened.

Among sectors in the S&P 500, financials and utilities outperformed, presumably on diminished expectations for rate cuts, as the US Treasury yield curve flattened on the Fed news with the short end selling off and the long end improving. Laggards included energy and industrials.

Among companies in focus, delivery giant Fedex dropped 12.9 percent after cutting its profits forecast in light of deteriorating macroeconomic conditions. Delivery competitor UPS also fell 1.1 percent. Energy shares fell for a second day as oil prices gave up even more of their gains on Monday that followed an attack on Saudi oil facilities. Hess Corp., the oil company, fell 1.3 percent, and big oil driller Halliburton was off 1.0 percent. Adobe, the software company, fell 1.8 percent after weak revenue guidance despite solid quarterly earnings. General Motors was off 0.3 percent amid conflicting reports on prospects for the White House to intervene in an expected labor union walkout. Chewy, the pet food company, was off 6.0 percent as markets were disappointed with its full-year profits guidance.

In US economic data, housing starts and permits climbed in August, far above Econoday's consensus range to a 1.364 million annual rate for starts and 1.419 million for permits. Readings are now slightly better than they were at their expansion peak early last year.  Meanwhile, crude oil inventories rose 1.1 million barrels in the September 13 week to 417.1 million, 5.8 percent above their level last year at this time. Product inventories also rose, with gasoline up 0.8 million barrels to 229.7 million, 1.9 percent lower than last year at this time, while distillates rose 0.4 million barrels to 136.7 million and 2.5 percent below their level a year ago.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude oil fell 48 cents to US$63.58, while gold fell by US$6.70 to US$1,503.30. The US dollar rose against most major currencies. The US Treasury 30-year bond yield fell 2 basis points to 2.25 percent while the 10-year note yield fell 1 basis point to 1.80 percent.

European markets

European equities ended flat in cautious trading Wednesday as markets waited for the Federal Reserve’s policy announcement. The Europe-wide STOXX 600 was basically flat at up 0.02 percent, and the German DAX and the French CAC both rose 0.1 percent. The UK FTSE-100 was off 0.1 percent.

Among shares in the Stoxx 600, outperformers included defensive sectors, utilities, and real estate, while underperformers included personal and household goods, especially luxury goods,  plus banks, financial services, and basic resources. Moncler, the Italian luxury clothing maker, fell 6.6 percent after the company warned about the negative impact of trouble in Hong Kong. Beiersdorf, a German personal care products maker, was off 0.5 percent on an analyst downgrade.

In economic data, UK consumer prices rose a smaller than expected 0.4 percent on the month in August, reducing annual inflation from July's 2.1 percent to 1.7 percent, a three-year low and back below the Bank of England's 2 percent medium-term target.

Asia Pacific markets

Price action was limited for most major Asian markets Wednesday, with the regional data calendar light and investors focused on the upcoming Federal Reserve meeting. Japan’s Topix index and Singapore’s Straits Times index underperformed, closing down 0.5 percent and 0.7 percent respectively on the day, with Japanese data showing weak export growth in August a day after Singapore data had shown the same. Japan’s Nikkei index fell 0.2 percent as did Australia’s All Ordinaries index. Hong Kong’s Hang Seng index closed down 0.1 percent on the day while the Shanghai Composite index advanced 0.3 percent.

Japanese trade data showed export growth weakened in August but import growth slowed more sharply, resulting in the merchandise trade deficit narrowing from Y250.7 billion in July to Y136.3 billion in August, smaller than the consensus forecast for a deficit of Y370.2 billion. Exports fell 8.2 percent on the year in August after dropping 1.5 percent in July, broadly in line with previously released Chinese and Singaporean data. This drop in headline growth was broad-based across major trading partners, including China, the United States and the European Union.  Imports fell 12.0 percent on the year after dropping 1.2 percent previously, largely reflecting weaker growth in both the value and volumes of petroleum imports.

Looking forward

On Thursday on the Asia/Pacific calendar, the Bank of Japan announcement as well as New Zealand GDP and Australian labor force survey reports are due. In Europe, the Bank of England policy announcement and minutes will be released. The Swiss National Bank monetary policy assessment is also due. In European data, Swiss merchandise trade and UK retail sales reports are scheduled for release. In US data, jobless claims, Philadelphia Fed Business Outlook Survey, existing home sales, and EIA natural gas reports are due.

Global stock markets

 

Index

18 Sep 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

27147.08

36.28

0.1

 

NASDAQ

8177.39

-8.63

-0.1

 

S&P 500

3006.73

1.03

0.0

Canada

S&P/TSX Comp

16800.29

-34.46

-0.2

Europe

 

 

 

 

UK

FTSE 100

7314.05

-6.35

-0.1

France

CAC

5620.65

5.14

0.1

Germany

XETRA DAX

12389.62

17.01

0.1

Italy

MIB

21947.7

145.77

0.7

Spain

Ibex 35

9031.7

27.50

0.3

Sweden

OMX Stockholm 30

1655.11

5.78

0.4

Switzerland

SMI

10018.84

5.02

0.1

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6791.25

-10.41

-0.2

Japan

Nikkei 225

21960.71

-40.61

-0.2

 

Topix

1606.62

-7.96

-0.5

Hong Kong

Hang Seng

26754.12

-36.12

-0.1

S. Korea

Kospi

2070.73

8.40

0.4

Singapore

STI

3166.84

-16.16

-0.5

China

Shanghai Comp

2985.66

7.54

0.3

Taiwan

TAIEX

10929.45

54.95

0.5

India

Sensex 30

36563.88

82.79

0.2

*Markets closed

 

 

 

 

Note: all releases are listed in local time.

Important Information

Econoday Inc. is a US company that provides financial commentary and indicators to industry professionals. All information provided and views expressed are those of Econoday. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Past performance is not a reliable indicator of future results. The value of investments can go down as well as up and investors may not get back the amount invested.