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On 20 February 2019 - Global stocks steady as investors await US-China trade talk outcomes

Anne D Picker

Anne D Picker - Econoday

FOMC minutes show Fed positive on growth and labour market despite adjusting policy outlook to neutral.

US markets

US stocks were little changed Wednesday with the content of FOMC minutes published late in the session in line with expectations and news from ongoing US-China trade talks still limited. The Dow and the S&P both advanced 0.2 percent while the Nasdaq was unchanged on the day.

The minutes from the January FOMC meeting showed that officials remained relatively confident about economic conditions despite announcing after that meeting a shift in the guidance about the policy outlook from further rate hikes to neutral. Officials considered domestic economic growth to be solid and the labour market to be strengthening but also noted weakness in residential investment, government spending, and global growth. Household spending was considered at the time of the meeting to be strong, though subsequently released data showed a sharp drop in retail sales in December. The Federal Reserve’s balance sheet was a key issue for discussion at the meeting, with FOMC members agreeing that it will be appropriate to announce soon that later in the year they will stop winding down the level of Treasury and mortgage-backed securities in the Fed’s portfolio.

CVS Health posted a large fall Wednesday after it forecast 2019 adjusted earnings per share to be between US$6.68 to US$6.88, lower than analysts’ estimates of US$7.41. Adjusted earnings per share for the fourth quarter were US$2.14, above estimates of US$2.05, with the health-care company completing a US$70 billion acquisition of insurer Aetna in November. Executives cited several factors expected to weigh on near-term performance but expressed confidence that the acquisition would help to lower costs and that new retail offerings would deliver a significant boost to revenues.

Southwest Airlines also dropped Wednesday after it lowered its first quarter revenue estimates, with other airlines also underperforming. Southwest now expects its key revenue metric to increase 3.0 percent to 4.0 percent on the quarter, down from its previous estimate of 5.0 percent. This downward revision was partly driven by a larger estimate of the impact of the recent government shutdown on its revenues.

US-China trade talks continued in Washington Wednesday, but few details have been made public about the terms of any likely agreement. US tariffs on Chinese imports are scheduled to increase from 10 percent to 25 percent at the start of March. President Trump noted that the talks are making progress and again indicated he may delay the planned increase in tariffs if an agreement is close to being reached.

These data reflect observations at 4:00 PM US ET. Gold fell US$3.20 to US$1,341.60 while dated Brent spot crude gained US$0.58 to US$67.03. The US dollar fell against the yuan Wednesday but moves against other major currencies were limited. The yield on the US Treasury 30 year bond rose 1 basis point to 2.99 percent while the 10 year note rose 1 basis point to 2.64 percent.

European markets

Major European indices advanced Wednesday, with investor sentiment boosted by indications that US-China trade talks will avert a planned increase in tariffs. The FTSE closed up 0.7 percent on the day, as did the CAC, with the DAX advancing 0.8 percent. Auto stocks were among the stronger performers across the region.

The Confederation of British Industry’s survey of the manufacturing sector showed an improvement in its headline index in February despite weaker global growth and ongoing Brexit uncertainty. Respondents reported weaker output growth but stronger orders and selling prices. Eurozone consumer confidence data also showed a small improvement in sentiment in February.

UK supermarket chain Sainsbury’s sold off heavily Wednesday after authorities ruled that they are unlikely to approve its planned takeover of rival chain ASDA, and that the deal could only proceed if the two companies divested a significant number of existing stores.  Sainsbury’s is the second-largest supermarket chain in the UK while ASDA, owned by Walmart, is the third-largest. Walmart also fell in New York on the news. Both companies have vowed to challenge this decision and continue with the planned acquisition.

Swiss bank UBS closed lower after a French court Wednesday ordered it to pay a fine of US$4.2 billion for helping French clients evade taxes. The bank denies the allegations and has said it will appeal the decision. Analysts believe the fine is large enough to impact the bank’s capital ratios and could threaten a planned US$1 billion share buyback later this year.

Asia Pacific Markets

Most Asian markets advanced Wednesday, with optimism about the outcome of US-China trade talks again a factor supporting investor sentiment. Hong Kong’s Hang Seng index and Korea’s Kospi were among the strongest regional performers, up 1.0 percent and 1.1 percent respectively on the day, with markets also closing higher in Japan, China, Singapore, India and Taiwan. Australia’s All Ordinaires index bucked the regional trend, closing down 0.1 percent after disappointing announcements from key companies, including retailer Woolworths, property developer Stockland, and casino operator Crown. 

Japanese trade data showed a larger-than-expected increase in the trade deficit in January, with a sharper fall in exports growth outweighing a more modest decline in imports growth. The drop in headline exports was largely driven by weaker growth in exports to China, Hong Kong, Taiwan and Singapore. Singapore trade data released earlier in the week also showed weaker export growth in January. 

Looking forward

Australian labour market data and the flash PMI survey for the Japanese manufacturing sector will be published shortly. Flash PMI surveys for Europe and the United States are also scheduled for release Thursday, with European CPI reports, European Central Bank minutes, US durable goods orders, and jobless claims reports also among the highlights of a busy data calendar.

Global Stock Markets

 

Index

Feb 20 2019

Daily Change

% Change Daily

North America

United States

Dow

25954.44

63.12

0.2

 

NASDAQ

7489.07

2.30

0.0

 

S&P 500

2784.70

4.94

0.2

Canada

S&P/TSX Comp

16031.24

93.80

0.6

Europe

UK

FTSE 100

7228.62

49.45

0.7

France

CAC

5195.95

35.43

0.7

Germany

XETRA DAX

11401.97

92.76

0.8

Italy

MIB

20304.21

76.02

0.4

Spain

Ibex 35

9181.10

44.70

0.5

Sweden

OMX Stockholm 30

1588.61

1.39

0.1

Switzerland

SMI

9315.63

59.46

0.6

Asia/Pacific

Australia

All Ordinaries

6175.76

-8.44

-0.1

Japan

Nikkei 225

21431.49

128.84

0.6

 

Topix

1613.47

6.95

0.4

Hong Kong

Hang Seng

28514.05

285.92

1.0

S. Korea

Kospi

2229.76

24.13

1.1

Singapore

STI

3278.38

18.58

0.6

China

Shanghai Comp

2761.22

5.57

0.2

Taiwan

TAIEX

10272.46

120.20

1.2

India

Sensex 30

35756.26

403.65

1.1

Source: Haver Analytics

Note: all releases are listed in local time.

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