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On 20 March 2019 - US stocks mixed after Federal Reserve downgrades outlook and signals policy stability

Anne D Picker

Anne D Picker - Econoday

European Union set to permit Brexit delay subject to UK parliament approving withdrawal deal

US markets

US stocks were mixed Wednesday after the Federal Reserve left policy on hold and confirmed their view that policy stability is likely to extend into 2020. The Dow closed down 0.5 percent and the S&P fell 0.3 percent on the day, but the Nasdaq recorded a small increase of 0.1 percent.

The FOMC, as expected, kept its policy rate unchanged at 2.375 percent at the conclusion of its meeting Wednesday, but officials also signalled a palpable shift to the dovish side, setting a date for an end of quantitative easing and downgrading their assessment of economic conditions and the policy outlook. Although the labour market is still considered to be strong, consumer and business spending are now both described as slowing after officials described them as growing strongly back in January. Officials also note that inflation has fallen though they attribute this mainly to energy prices. The US economy is now forecast to grow by 2.1 percent this year, down from the previous forecast of 2.3 percent, and by 1.9 percent in 2020 and by 1.8 percent in 2021. Officials’ forecast for the PCE measure of inflation for this year has been revised down from 1.9 percent to 1.8 percent, but the forecast for the core measure is unchanged at 2.0 percent.

The dot plots for future policy moves have also been updated from those published in December, incorporating the shift to a more cautious policy stance announced in January. In December two more rate hikes were indicated for 2019 and another in 2020, whereas now the dot plots only show the one hike in 2020. Today’s statement also advises that the end of quantitative easing is set for September, with monthly targets to be reduced from May. From October the Fed will keep its balance sheet steady and reinvest maturing MBS into Treasuries.

Alphabet, the owner of Google, advanced Wednesday, despite news that it has been fined US$1.7 billion by European antitrust authorities for limiting on some websites the display of advertisements sold by competitors. This fine is smaller than previous fines levied on Google and is not accompanied by any order to change business practices, with authorities satisfied that appropriate changes have already been made. It is not clear whether investigations by European authorities into other practices by Google will result in formal charges.

These data reflect observations at 4:00 PM US ET. Gold advanced US$7.70 to US$1,314.20 while dated Brent spot crude rose US$0.81 to US$68.42. The US dollar strengthened against the pound but fell against all other major currencies. The yield on the US Treasury 30-year bond fell 5 basis points to 2.97 percent while the 10-year note dropped 8 basis point to 2.53 percent.

European markets

European markets fell Wednesday, with the FTSE down 0.5 percent, the CAC falling 0.8 percent, and the DAX reversing much of the gains made in recent days with a fall of 1.6 percent. Auto stocks were among the weaker performers, with BMW closing lower after it announced it expects profits to fall by more than 10 percent in 2019. The sharp fall in the DAX was also partly driven by Bayer after a US jury ruled that a weedkiller it produces was a “substantial factor” causing a man’s cancer.

The European Union has announced that it will permit a delay to the United Kingdom’s withdrawal but only if the UK parliament approves the current withdrawal agreement next week. The UK is scheduled to leave the EU next Friday, March 29. UK Prime Minister Theresa May has formally requested a delay until June 30, but EU officials have suggested that any delay should not go beyond May 23, the date of elections for the European parliament.

UK inflation data showed slightly stronger price pressures in February but are unlikely to have an impact on the Bank of England’s policy meeting later in the week, with officials expected to keep rates on hold. The consumer price index rose 0.5 percent on the month, rebounding from a drop of 0.8 percent in January and above the consensus forecast of 0.4 percent, with inflation picking up slightly from 1.8 percent to 1.9 percent.  Food and alcohol prices were stronger, offset by weaker increase in transport and clothing prices. Core measures of inflation were steady and remained below 2.0 percent in February, suggesting that tight labour market conditions and stronger wages growth have yet to flow through to consumer prices. Producer prices rose 0.1 percent on the month after no change previously with the inflation rate increasing for the first time since October from 2.1 percent to 2.2 percent. Input costs increased more sharply, mainly reflecting higher global oil prices. German producer price inflation was steady at 2.6 percent in February.

Asia Pacific Markets

Asian markets were mixed Wednesday ahead of the Federal Reserve policy decision. Japan’s Nikkei and Topix indices advanced 0.2 percent and 0.3 percent respectively, the Shanghai Composite index and Korea’s Kospi index both closed unchanged on the day, while Australia’s All Ordinaries index and Hong Kong’s Hang Seng index underperformed with declines of 0.4 percent and 0.5 percent respectively.

The Asian data calendar was light Wednesday, with the minutes of the Bank of Japan’s January meeting providing little new information. The Japanese government also updated its assessment of economic conditions on Wednesday, retaining its view that the economy is recovering “at a moderate pace” but noting recent weakness in exports and industrial production.

Looking forward

New Zealand GDP and Australian labor market data will be released shortly. Policy decisions from the Bank of England and the Swiss National Bank will be the focus in Europe, while jobless claims data and the Philadelphia Fed survey are the highlights of the US data calendar.

Global stock markets

 

Index

Mar 20 2019

Daily Change

% Change Daily

North America

United States

Dow

25745.67

-141.71

-0.5

 

NASDAQ

7728.97

5.02

0.1

 

S&P 500

2824.23

-8.34

-0.3

Canada

S&P/TSX Comp

16167.56

-20.54

-0.1

Europe

UK

FTSE 100

7291

-32.99

-0.5

France

CAC

5382.66

-43.24

-0.8

Germany

XETRA DAX

11603.89

-184.52

-1.6

Italy

MIB

21330.21

-100.14

-0.5

Spain

Ibex 35

9405.6

-86.7

-0.9

Sweden

OMX Stockholm 30

1605.99

-9.15

-0.6

Switzerland

SMI

9463.32

-62.6

-0.7

Asia/Pacific

Australia

All Ordinaries

6251.77

-24.8

-0.4

Japan

Nikkei 225

21608.92

42.07

0.2

 

Topix

1614.39

4.16

0.3

Hong Kong

Hang Seng

29320.97

-145.31

-0.5

S. Korea

Kospi

2177.1

-0.52

0.0

Singapore

STI

3207.66

-13.26

-0.4

China

Shanghai Comp

3090.64

-0.34

0.0

Taiwan

TAIEX

10551.56

39.24

0.4

India

Sensex 30

38386.75

23.28

0.1

Source: Haver Analytics

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.