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On 20 August 2019 - US soft; Europe off on politics; Asia mixed

Anne D Picker

Anne D Picker - Econoday

Markets await Fed comments later in week.

US markets

Major US stock indexes slipped Tuesday in quiet trading after two days of strong gains, with another rally in fixed-income markets sending stocks a gloomy signal. Many traders are away or awaiting central bank news later in the week, including comments from officials attending the Federal Reserve’s Jackson Hole conference starting Thursday. The Dow industrials fell 0.7 percent, the S&P 500 declined 0.8 percent, and the NASDAQ lost 0.7 percent.

Markets focused on reports the Trump administration is considering steps to boost the economy, including payroll tax cuts and a less aggressive stance on import tariffs. Yet other reports appeared to take the air out of those hopes, and in afternoon comments, President Trump downplayed recession worries and focused on blaming the Fed for economic problems. Trump also said he is not ready to make a deal with China on trade. Also contributing to negative sentiment for risk assets: Italian political instability, Brexit worries, and the Hong Kong situation.

Chemicals, tobacco shares, and banks underperformed, while home builders and technology hardware and tech services held up best, among shares in the S&P 500.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude rose 25 cents to US$59.99, while gold rose US$5.90 to US$1,517.15. The US dollar fell against most major currencies. The yield on the US Treasury 30-year bond yield was down 6 basis points at 2.03 percent while the yield on the 10-year note fell 5 basis points to 1.55 percent.

European markets

European equities slipped Tuesday on news that Italy’s government was likely to fall, and other political concerns. The Europe-wide STOXX 600 declined 0.7 percent, the German DAX was down 0.5 percent, the French CAC fell 0.5 percent and the UK FTSE 100 fell 0.9 percent. Italy’s FTSE MIB index fell 1.1 percent, and the Spanish IBEX fell 1.3 percent.

Italian Prime Minister Giuseppe Conte announced his resignation, which is expected to lead to new elections. Markets are disappointed that Italy is now unlikely to pass its budget or implement fiscal reforms as expected. News that Spain’s Podemos Party had again failed to form a government knocked Spanish stocks lower. Ongoing acrimony over Brexit between UK Prime Minister Boris Johnson and his EU colleagues added to the negative mood.

In the Euro Stoxx 600 all sectors fell, with banks leading the selloff on the declining interest rate outlook. Basic resources were hit hard, with BHP Billiton off 2.6 percent after warning of weak global demand for minerals. Among companies reporting results, Pandora, the Danish jewelry firm, rallied by 10.6 percent after maintaining its annual guidance despite a quarterly earnings miss.

In economic news, German producer prices were slightly firmer than expected in July. Beating expectations calling for a flat reading, a 0.1 percent monthly gain nevertheless pulled annual PPI inflation down from June's 1.2 percent to 1.1 percent, a tick above the consensus forecast though still the lowest mark since December 2016. Separately, the CBI's latest Trends survey found UK manufacturing staging a recovery in August after sagging woefully in the previous month. In particular, posting the first gain in six months and more than offsetting the July decline, the headline total orders balance gained 21 percentage points to minus 13 percent, in line with the long-run average.

Asia Pacific markets

Major Asia markets recorded mixed results Tuesday, with regional data and news flow again relatively limited. Australia’s All Ordinaries index was the strongest regional performer, closing up 1.2 percent after the minutes of the Reserve Bank of Australia’s meeting held early in the month reinforced investor expectations that further rate cuts are likely in coming months. Japan’s Nikkei and Topix indices also advanced, up 0.6 percent and 0.8 percent respectively. After strong gains Monday, the Shanghai Composite index and Hong Kong’s Hang Seng index closed down 0.1 percent and 0.2 percent respectively.

The Reserve Bank of Australia minutes published Tuesday were broadly in line with the statement published after its meeting earlier in the month when officials left the policy interest rate unchanged at a record low of 1.00 percent. This followed a 25 basis point rate cut at each of the RBA's previous two meetings. Officials advised then that they continued to expect economic growth to pick up “gradually” but that they had pushed back when they expect headline inflation to move back into their target range of 2.0 percent to 3.0 percent. The minutes reaffirm officials view that it is "reasonable to expect" that policy rates will stay low for an "extended period" to make more "assured progress" towards hitting the inflation target. In addition the minutes also noted that further rate cuts would be considered if incoming data suggested this would be necessary to support growth and achieve the inflation target.

Hong Kong's headline consumer price index increased 3.3 percent on the year in July, unchanged from the rate recorded in June and remaining at its highest level since mid-2016. Officials attributed continued strong inflation in July mainly to a surge in pork prices caused by ongoing shortages, offset by more subdued increases in the cost of package tours for mainland Chinese visitors. The underlying inflation rate was also unchanged at 3.2 percent in July.

Looking forward

On Wednesday in Europe, the UK public sector finances report is scheduled. In North America, Canadian CPI data will be released, along with US existing home sales, and FOMC meeting minutes.

Global stock markets

 

Index

20 Aug 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

25962.44

-173.35

-0.7

 

NASDAQ

7948.56

-54.25

-0.7

 

S&P 500

2900.51

-23.14

-0.8

Canada

S&P/TSX Comp

16213.31

-90.74

-0.6

Europe

 

 

 

 

UK

FTSE 100

7125

-64.65

-0.9

France

CAC

5344.64

-26.92

-0.5

Germany

XETRA DAX

11651.18

-64.19

-0.6

Italy

MIB

20485.43

-230.06

-1.1

Spain

Ibex 35

8618.3

-115.00

-1.3

Sweden

OMX Stockholm 30

1534.34

-4.63

-0.3

Switzerland

SMI

9770.39

-55.20

-0.6

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6627.37

76.88

1.2

Japan

Nikkei 225

20677.22

114.06

0.6

 

Topix

1506.77

12.44

0.8

Hong Kong

Hang Seng

26231.54

-60.30

-0.2

S. Korea

Kospi

1960.25

20.35

1.0

Singapore

STI

3135.95

7.50

0.2

China

Shanghai Comp

2880

-3.10

-0.1

Taiwan

TAIEX

10522.5

33.75

0.3

India

Sensex 30

37328.01

-74.48

-0.2

Note: all releases are listed in local time.

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