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On 22 August 2019 - US flat to weaker, Europe lower; Asia steady before Powell

Anne D Picker

Anne D Picker - Econoday

Hawkish Fed comments in focus.

US markets

Major US stock indexes were mixed to weaker Thursday on unexpectedly hawkish Federal Reserve comments but ended above their worst levels of the day. The Dow industrials rose 0.2 percent, the S&P 500 was down 0.1 percent, the NASDAQ fell 0.4 percent, and the Russell 2000 was down 0.3 percent.

Traders noted remarks from Philadelphia Fed President Patrick Harker, who said he does not see a need for another rate cut. Kansas City Fed President Esther George, a noted hawk, cast doubt on the efficacy of interest rate cuts. Harker will be a voting member on the Federal Open Market Committee next year while George is a current voter, and she dissented against the last rate cut. Markets are awaiting comments from Fed Chair Jay Powell due Friday from Jackson Hole.

Materials, technology, health care and communications were the worst performers, while financials, energy, and consumer staples fared better. Retailer Nordstrom advanced 16 percent after topping earnings expectations. Dick’s Sporting Goods rose 3.6 percent after an earnings beat, with Q2 earnings-per-share of $1.26 versus the $1.21 FactSet estimate. The retail chain also raised its full-year guidance, despite the pending impact of US tariffs on imported Chinese clothing.

In economic news, the coming employment report for August looks to be roughly as strong if not slightly stronger than prior reports, at least based on jobless claims. New jobless claims in the August 17 week, which was the sample week for the August employment report, fell a sharp 12,000 to a more favorable-than-expected level of 209,000. The 4-week average of 214,500 is down nearly 5,000 from the sample week of the July report.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude oil fell 32 cents to US$59.98, while gold fell US$7.20 to US$1,508.50. The US dollar fell against most major currencies. The yield on the US Treasury 30-year bond yield was up 3 basis points to 2.11 percent while the yield on the 10-year note rose 3 basis points to 1.61 percent.

European markets

European equities ended lower with soft manufacturing PMI data in focus, and with the UK market off the most as sterling rallied on German Chancellor Angela Merkel’s statement that a solution to the Irish border issue could be reached by October. The Europe-wide STOXX 600 fell 0. 4 percent, the German DAX was down 0.5 percent, the French CAC dropped 0.9 percent, and the UK FTSE 100 was off 1.1 percent.

The Italian political situation remained uncertain, with various parties maneuvering for advantage. On the corporate earnings front, NMC Health Shares rallied 18 percent on earnings and takeover talk. Outperforming sectors included banks, autos, as well as travel & leisure. Underperformers included technology, construction and materials, and personal and household goods.

In economic news, ECB governing council meeting minutes spoke of a more protracted recession. In data, the German private sector expanded more than expected but continued to underperform in August, with the flash composite index edging up 0.5 points above its final July mark to 51.4. Solid growth in services at 54.4 was again countered by a smaller but still marked fall in manufacturing output (45.8 after 44.3), with the manufacturing PMI remaining deep in contraction.

Meanwhile, French private sector business activity unexpectedly expanded at a faster pace in August. At 52.7, the flash composite output measure was up 0.8 points versus its final July reading and far enough above the 50-expansion threshold to signal at least a moderate period of economic growth. Previously contracting manufacturing recovered (51.0 after 49.7 July), with the sector's output also rising 1.4 points and back into expansion territory at 50.4. Separately, Eurozone flash PMI results for August point to soft GDP growth as contracting activity in manufacturing continues to offset moderately strong expansion in services. The flash composite output rose just 0.3 points versus July's final and flash readings to 51.8, still one of the weakest readings over the last six years.

Asia Pacific markets

Most major Asian markets were little changed Thursday ahead of potential news on the global policy outlook from the Federal Reserve’s Jackson Hole conference late this week. Indonesia’s central bank unexpectedly cut policy rates for the second time in two months at its meeting Thursday, broadly in line with the recent trend elsewhere in the region. Australia’s All Ordinaries index rose 0.3 percent on the day, Japan’s Nikkei and Topix indices were both unchanged while the Shanghai Composite index advanced 0.1 percent. Hong Kong’s Hang Sang index was an outlier, falling 0.8 percent on the day.

Japanese data indicate some improvement in economic conditions in August. Flash estimates for PMI surveys showed a small increase in the headline index for the manufacturing sector from 49.4 to 49.5 but a more substantial advance in the headline index for the services sector from 51.8 to 53.4, its highest level since 2015. Together these moves resulted in the composite index rising from 50.6 in July to 51.7 in August. Less timely data showed a drop in the All Industry index in June, broadly in line with what the PMI surveys showed previously.

Looking forward

On Friday in Asia/Pacific, New Zealand retail trade, Singapore CPI, and Japanese CPI releases are due. In North America, the following will be released: Canadian retail sales and US new home sales. The big event, however, will be Fed Chair Jay Powell’s speech at the Jackson Hole conference.

Global stock markets

 

Index

22 Aug 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

26252.24

49.51

0.2

 

NASDAQ

7991.39

-28.82

-0.4

 

S&P 500

2922.95

-1.48

-0.1

Canada

S&P/TSX Comp

16253.46

-55.77

-0.3

Europe

 

 

 

 

UK

FTSE 100

7128.18

-75.79

-1.1

France

CAC

5388.25

-47.23

-0.9

Germany

XETRA DAX

11747.04

-55.81

-0.5

Italy

MIB

20816.99

-30.08

-0.1

Spain

Ibex 35

8716.4

14.90

0.2

Sweden

OMX Stockholm 30

1535.51

-7.96

-0.5

Switzerland

SMI

9805.5

-42.61

-0.4

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6593.02

20.45

0.3

Japan

Nikkei 225

20628.01

9.44

0.0

 

Topix

1498.06

0.55

0.0

Hong Kong

Hang Seng

26048.72

-221.32

-0.8

S. Korea

Kospi

1951.01

-13.64

-0.7

Singapore

STI

3127.74

5.17

0.2

China

Shanghai Comp

2883.44

3.11

0.1

Taiwan

TAIEX

10529.78

3.98

0.0

India

Sensex 30

36472.93

-587.44

-1.6

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.