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On 19 June 2019 - Asia rallies but Europe down; US flat despite dovish Fed

Anne D Picker

Anne D Picker - Econoday

Federal Reserve positions for future rate cuts as expected.

US markets

A move to rate cuts was expected and was the unambiguous result of the Federal Reserve's latest policy meeting. US shares could get little boost from the Fed's move: the Dow industrials inched 0.1 percent higher; the S&P 500 rose 0.3 percent, and the NASDAQ was 0.4 percent higher.

Lack of price pressures and slowing economic growth, specifically trade-related weakening in business investment, set the backdrop for a Federal Reserve policy statement that points squarely at rate cuts in coming meetings. For now, the Fed's target rate is unchanged at a 2.375 percent mid-point. The Fed's statement removed the word "patient" when referring to policy and warned that uncertainties have "increased" for the outlook. Nevertheless, policy makers still see inflation near the 2 percent objective.

Among companies in focus: Winnebago rose about 3 percent after an earnings beat and Facebook shares were 0.5 percent lower amid regulatory concern over its privacy practices and after its announcement of a digital currency, Libra.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude was down US$0.22 at US$62.07 while gold was up US$13.40 at $1,364.10. The US dollar was weaker against most major currencies especially against the pound and the Swiss franc. The yield on the US Treasury 30-year bond was 4 basis points lower at 2.54 percent while the yield on the 10-year note was 3 points lower at 2.03 percent.

European markets

European equities were flat to lower Wednesday after Tuesday’s rally, but activity was restrained ahead of the Fed’s policy announcement. Trading was also cautious ahead of Bank of Japan and Bank of England policy announcements due on Thursday.

Markets were disquieted by President Trump criticism of ECB President Mario Draghi for suggesting the ECB may need to ease policy,  a move Trump said is aimed at gaining a competitive advantage against the US. On the positive side, sentiment on US-China trade has improved since Trump said on Tuesday that bilateral talks would resume, and that he would meet Chinese President Xi at the G20 next week.

The European STOXX 600 was unchanged, the German DAX eased by 0.2 percent, the French CAC gained 0.2 percent, and the UK FTSE 100 fell 0.5 percent.

Among stocks in focus, chipmaker Siltronic rebounded by 6 percent after dropping on Tuesday, amid hopes for progress in US-China trade talks. Carl Zeiss, a medical technology firm, dropped 5 percent on a negative analyst rating. Colruyt, a food retailer, fell 14 percent after an earnings warning. Bank stocks improved, with Royal Bank of Scotland, leading the way, up 3.5 percent, and Deutsche Bank up 2.8 percent.

In economic news, German producer prices were unexpectedly weak in May. A 0.1 percent monthly decline was the third fall in the last four months and reduced annual PPI inflation from 2.5 percent to 1.9 percent, its first sub-2 percent reading since April 2018.

In the UK, the CBI's June Trends Survey added to the view that a buoyant first quarter for UK manufacturing was largely attributable to pre-emptive Brexit stockpiling. Output over the last three months (2 percent after 14 percent in May) was little better than stagnant and posted its weakest growth since April 2016.

Asia Pacific Markets

Major Asian share markets rallied strongly Wednesday after ECB President Draghi’s dovish comments Tuesday and in anticipation of policy easing by the Federal Reserve. News that President Trump spoke with President Xi and plans to meet him at the G20 summit later this month also provided some support to investor sentiment across the region. The Shanghai Composite index advanced 1.0 percent on the day, while Hong Kong’s Hang Seng index surged 2.6 percent. Japan’s Nikkei and Topix indices both closed up 1.7 percent on the day, with weak Japanese trade data overshadowed by broader developments. Australia’s All Ordinaries index rose 1.2 percent on the day, boosted by strong gains in the mining sector.

Japanese trade data was the main focus of a light regional trade calendar. The trade balance swung from a revised surplus of Y56.8 billion in April to a deficit of Y967.1 billion in May, smaller than the consensus forecast for a deficit of Y1,135.7 billion, with both exports and imports recording weaker year-on-year growth. The bigger year-on-year decline in Japan's exports in May was broad-based across major trading partners and was broadly in line with previously released Chinese and Singaporean data also indicating subdued trade flows in May. Japanese exports to China fell 9.7 percent on the year in May after dropping 6.3 percent in April, year-on-year growth in exports to the United States slowed from 9.6 percent to 3.3 percent, and exports to the European Union dropped 7.1 percent on the year after falling 2.6 percent previously. Exports to most other Asian economies also fell on the year in May. Weaker headline imports growth in May was also broad-based across most categories.

Looking forward

The Bank of Japan and the Bank of England are to announce results of their monetary policy meetings Thursday.  In data, New Zealand issues its GDP report. In Europe, the UK will issue retail sales data. US data include weekly jobless claims  and the Philadelphia Fed manufacturing report.

Global Stock Markets

 

Index

19 Jun 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26504

38.46

0.1

 

NASDAQ

7987.32

33.44

0.4

 

S&P 500

2926.46

8.71

0.3

Canada

S&P/TSX Comp

16511.79

8.44

0.1

Europe

 

 

 

 

UK

FTSE 100

7403.54

-39.50

-0.5

France

CAC

5518.45

8.72

0.2

Germany

XETRA DAX

12308.53

-23.22

-0.2

Italy

MIB

21221.38

87.60

0.4

Spain

Ibex 35

9231.2

-9.50

-0.1

Sweden

OMX Stockholm 30

1612.4

2.97

0.2

Switzerland

SMI

9961.65

-26.90

-0.3

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6728.54

80.61

1.2

Japan

Nikkei 225

21333.87

361.16

1.7

 

Topix

1555.27

26.60

1.7

Hong Kong

Hang Seng

28202.14

703.37

2.6

S. Korea

Kospi

2124.78

26.07

1.2

Singapore

STI

3288.17

49.44

1.5

China

Shanghai Comp

2917.8

27.64

1.0

Taiwan

TAIEX

10775.34

208.60

2.0

India

Sensex 30

39112.74

66.40

0.2

*Markets closed

 

 

 

Data Source — Haver Analytics

 

 

 

Note: all releases are listed in local time.

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