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On 19 July 2019 - US off on Fed headlines, Europe, Asia better

Anne D Picker

Anne D Picker - Econoday

Market hopes fade for aggressive Fed rate cuts in July.

US markets

US stocks slipped Friday as the market appeared to price out a 50 basis point rate cut in favor of a 25 basis point cut at the Federal Reserve’s July policy meeting. The Dow industrials fell 0.3 percent; the S&P fell 0.6 percent, and the NASDAQ was off 0.7 percent.

Markets were whipsawed by conflicting headlines from Fed officials on Thursday and Friday. Stocks rose on Thursday when New York Fed President John Williams said, as a general rule, the Fed should “take swift action when faced with adverse economic conditions,” but markets gave back the gains when the Fed later said Williams was making an “academic” argument. On Friday, St. Louis Fed President James Bullard, a noted dove among voters on the FOMC, said he supported only a 25 basis point cut, which seemed to confirm the Fed would deliver only 25 basis points. Boston Fed President Eric Rosengren later said policy-makers should “do what’s right” even when it means disappointing market expectations.

Among companies in focus, Microsoft rose 0.2 percent after an earnings beat, and news its cloud computing business was booming. American Express fell 2.8 percent after it reported an unexpected rise in expenses. Media company Gannett rose 20 percent on a report it may be acquired by GateHouse Media. Crowdstrike, a data security firm, rose 15 percent on an earnings beat. Red Robin Gourmet Burgers rose 12 percent on a report that it may be acquired.

In economic news, US consumer sentiment is holding steady this month, at 98.4 for preliminary July versus 98.2 for final June. The current conditions component, which is very solid, fell slightly to 111.1 while the expectations component, which is likewise positive, rose slightly to 90.1.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude was up 61 cents to US$63.07 while gold dropped US$21.11 to US$1425.02. The US dollar rose against most major currencies. The yield on the US Treasury 30-year bond yield was up 1 basis point at 2.58 percent while the yield on the 10-year note was up 2 basis points at 2.05 percent.

European markets

Most European equities markets were flat to higher Friday, with the notable exception of the Italian market, which plunged on worries about an impending collapse of Italy’s coalition government. Iran’s seizure of a UK-flagged oil tanker added to worries about potential conflict between Iran and western powers. On the positive side were ongoing expectations for US rate cuts.

The European STOXX 600 rose 0.1 percent, the German DAX rose 0.3 percent, the French CAC was up a marginal 0.03 percent, and the UK FTSE 100 rose 0.2 percent. The Italian FTSE MIB plunged 2.1 percent on new discord between Italy’s governing League and Five Star parties, which could put Italy’s fiscal position in doubt.

Bank stocks were hit hardest by the Italy worry, with Italy’s Unicredit off 4.4 percent, and Intesa Sanpaolo off 2.8 percent. Industrial shares and auto shares did better on a report that US Treasury Secretary Steven Mnuchin saw high-level US-China trade talks resuming. Volvo jumped by 4.1 percent after the Swedish automaker announced cost cuts to offset the impact of trade tariffs. Swiss machinery maker ABB rose 1 percent, and UK aerospace firm BAE Systems rose 0.5 percent.

Beer-maker Anheuser-Busch Inbev rallied 5.5 percent on news it would cut its debt burden by divesting its Australian unit.

In economic news, German producer prices were surprisingly soft in June. A 0.4 percent monthly decline matched the steepest since January 2016 and means that prices have now fallen in four of the last five months. Annual PPI inflation slowed from 1.9 percent to 1.2 percent, its lowest mark since December 2016.

Asia Pacific Markets

Major Asian markets closed higher Friday but were mixed over the week, with investor sentiment on Friday supported by comments late in the New York session from New York Fed President John Williams noting that officials need to “act quickly” to boost economic growth. (A Fed spokesman later said Williams was making an “academic” argument).

Japanese shares were the strongest performers on Friday after heavy losses Thursday, with the Nikkei and Topix indices closing up 2.0 percent and 1.9 percent respectively, but finishing the week down 1.0 percent and 0.8 percent respectively. The Shanghai Composite index also finished up on the day and down on the week, with an increase of 0.8 percent and a decline of 0.2 percent respectively, while Hong Kon’s Hang Seng index rose 1.1 percent on the day and 1.0 percent on the week. Australia’s All Ordinaries index closed up 0.7 percent on the day and was flat on the week, with Friday’s gain boosted by a strong increase in shares of National Australia Bank after it announced the appointment of its new chief executive officer.

Japanese inflation data published Friday showed no change in headline inflation and officials' preferred measure of underlying inflation in June, providing more evidence that reaching the Bank of Japan's 2.0 percent inflation target remains a slow process. The headline consumer price index rose 0.7 percent on the year in June, unchanged from the pace recorded in May, with stronger price increases for food offset by weaker changes in utilities charges and transport and communication costs. Core CPI, which excludes fresh food prices, rose 0.6 percent on the year in June, down from 0.8 percent in May, while the BoJ's preferred measure, CPI excluding fresh food and energy prices, rose 0.5 percent on the year in June, as it did in May. At their most recent meeting, held last month, BoJ officials left policy settings on hold, reflecting their assessment that inflation is still "likely to increase gradually" towards 2.0 percent.

Japan's All Industry Index increased 0.3 percent on the month in May, slowing from an increase of 0.8 percent in April, with a fall in the tertiary index outweighing stronger growth in the industrial production index. These results contrast with Markit PMI survey data which showed weaker conditions in the manufacturing sector and a less pronounced weakening of conditions in the services sector in May.

Looking forward

Central Bank activities

 

Jul-25

Eurozone

ECB Policy Announcement

The following indicators will be released this week...

Europe

 

 

Jul-23

Eurozone

EC Consumer Confidence Flash (May)

 

UK

CBI Industrial Trends Survey (July)

Jul-24

Eurozone

M3 Money Supply (June)

 

 

PMI Composite Flash (July)

 

France

PMI Composite Flash (July)

 

Germany

PMI Composite Flash (July)

Jul-25

Germany

IFO Survey (July)

Jul-26

France

PPI (June)

 

Italy

Business and Consumer Confidence (July)

Asia Pacific

 

 

Jul-22

Singapore

CPI (May)

Jul-24

Japan

PMI Manufacturing Index Flash (July)

Jul-25

Hong Kong

Merchandise Trade (June)

Americas

 

 

Jul-23

US

Existing Home Sales (June)

Jul-24

US

New Home Sales (June)

Jul-25

US

Durable Goods Orders (June)

 

 

International Trade in Goods (June)

 

 

Jobless Claims (Week of July 20)

Jul-26

US

GDP (Q2 advance)

Global Stock Markets

 

Index

19 Jul 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

27154.20

-68.77

-0.3

 

NASDAQ

8146.49

-60.75

-0.7

 

S&P 500

2976.61

-18.50

-0.6

Canada

S&P/TSX Comp

16485.94

-8.29

-0.1

Europe

 

 

 

 

UK

FTSE 100

7508.70

15.61

0.2

France

CAC

5552.34

1.79

0.0

Germany

XETRA DAX

12260.07

32.22

0.3

Italy

MIB

21641.46

-449.35

-2.1

Spain

Ibex 35

9170.50

-55.20

-0.6

Sweden

OMX Stockholm 30

1605.42

28.01

1.7

Switzerland

SMI

9937.03

-73.12

-0.7

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6786.25

50.82

0.7

Japan

Nikkei 225

21466.99

420.75

2.0

 

Topix

1563.96

29.69

1.9

Hong Kong

Hang Seng

28765.40

303.74

1.1

S. Korea

Kospi

2094.36

27.81

1.3

Singapore

STI

3377.96

16.91

0.5

China

Shanghai Comp

2924.20

23.02

0.8

Taiwan

TAIEX

10873.19

73.91

0.7

India

Sensex 30

38337.01

-560.45

-1.5

*Markets closed

 

 

 

 

Note: all releases are listed in local time.

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