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On 21 November 2019 - US, Europe, Asia off on doubts over US-China trade pact

Anne D Picker

Anne D Picker - Econoday

Markets worry about delay in trade deal.

US markets

US equities edged down Thursday on doubts about a near-term US-China trade pact, though markets ended well up from early lows. The Dow industrial average, the S&P 500, and the NASDAQ all fell 0.2 percent.

Market sentiment was hurt by more reports suggesting that US-China trade talks may not yield a result this year, offset in part by other reports that the US may delay tariffs scheduled to take effect Dec. 15 even if there is no trade deal. Traders noted an additional report that the US may initiate a new inquiry into European trade practices as a means to raise pressure on Europe.

Among sectors, communications services and health care outperformed, while defensive stocks, consumer sectors, and technology lagged. Energy stocks perked up along with oil prices on a report that OPEC production cuts are likely to be extended through June 2020.

Among companies in focus, Dow member Intel, the chipmaker, rose 0.6 percent after saying it was not able to keep up with demand, despite record capital spending. L Brands, the fashion retailer, rose 10.1 percent after raisings its fourth-quarter guidance. On the downside, Macy’s, the retailer, fell 2.3 percent after cutting its guidance, and on declining margins.

In US economic news, the Philadelphia Fed's index has bolted back to the top of the regional manufacturing reports, at 10.4 in November and beating Econoday's consensus for the fourth time in five months. New orders have been on a tear in this sample, averaging 23.9 in the prior four reports though slowing sharply to 8.4 in today's report. In a separate report, new jobless claims came in at a higher-than-expected 227,000 in the November 16 week.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.30 to US$63.78, while gold fell by US$8.60 to US$1,464.60. The US dollar rose against most major currencies. US Treasury 30-year bond yield rose 2 basis points to 2.23 percent, and the US 10-year note yield rose 3 basis points to 1.77 percent.

European markets

Major European equities indexes weakened Thursday on more uncertainty over a US-China trade deal. The Europe-wide STOXX 600 declined 0.4 percent, the German DAX slipped 0.2 percent, the French CAC fell 0.2 percent, and the UK FTSE-100 was off 0.3 percent.

Reports suggesting the US and China may not reach a trade deal this year undercut risk appetite. Markets are also negative on fallout from a bill approved by the US Congress requiring the US to penalize China for human rights violations in Hong Kong. President Trump is expected to sign the measure into law. Stocks recovered from their lows on a report that the US may delay imposing tariffs scheduled to take effect Dec. 15 even if there is no phase-one trade deal.

Worries about US-China trade hit some trade-sensitive sectors hard, such as miners, finance, technology, and industrials, while autos, health care, real estate, and oil & gas held up better.

Among companies in focus, Thyssunkrupp, the German industrial engineering conglomerate, plunged by 13.1 percent after suspending its dividend, and after it asked for more time to conduct its turnaround. Glencore, the UK-Swiss miner, fell 1 percent. On the positive side, Erste Bank, the Austrian bank, rose 0.7 percent on positive quarterly results. British American Tobacco, the cigarette company, rose 3.9 percent on news the FDA is shelving plans to cut nicotine levels in cigarettes. Babcock International, the UK engineering company, rose 6.7 percent after confirming it may be acquired.

Asia Pacific markets

Major Asia markets closed lower Thursday, with investor sentiment again impacted by doubts that a US-China trade deal will be reached by the end of the year. Chinese officials noted that trade negotiations are continuing but also condemned the passing by the US Congress of legislation aimed at supporting human rights in Hong Kong. Hong Kong’s Hang Seng index posted the biggest drop in the region, closing down 1.6 percent.

Australia’s All Ordinaries index fell 0.7 percent, with major bank Westpac again selling off heavily in response to allegations of money laundering and terrorism financing breaches. Japan’s Nikkei and Topix indices closed down 0.5 percent and 0.1 percent respectively, while the Shanghai Composite index fell 0.3 percent.

Singapore GDP data was the main highlight of a relatively light regional data calendar Thursday. Revised estimates for Singapore's gross domestic product in the three months to September showed an annualised increase of 2.1 percent on the quarter, up strongly from the advance estimate of 0.6 percent growth. This follows a decline of 2.7 percent on the quarter in the three months to June. This upward revision to headline growth reflects new information indicating stronger conditions in the manufacturing sector. Officials, however, still expect annual growth to be no more than 1.0 percent in 2019 and noted several external risks to the outlook for growth in 2020.

Japan's All Industry Index advanced 1.5 percent on the month in September, up from no change in August. This pick-up in activity likely reflects stronger consumer spending in September ahead of an increase in consumption tax rates at the start of October. Hong Kong's headline consumer price index increased 3.1 percent on the year in October, down slightly from 3.2 percent in September, but still close to the three-year high of 3.5 percent in August. Ongoing price shortages again drove strong increases in food prices, with price pressures subdued for other categories of spending.

Looking forward

On Friday in Asia/Pacific, Japanese CPI, Japanese composite flash PMI, and Japanese manufacturing flash PMI reports scheduled. In Europe, German GDP, French composite flash PMI, German composite flash PMI, and Eurozone composite flash PMI reports are due. In North America, releases are scheduled for the following: Canadian retail sales, US composite flash PMI, and US consumer sentiment.

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Note: all releases are listed in local time.

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