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On 24 January 2019 - Earnings buoyed global stocks despite worries about trade

Anne D Picker

Anne D Picker - Econoday

The US government’s partial close continues.

US markets

US stocks were narrowly mixed despite generally strong earnings with the tech sector closing stronger amid a global rally in semiconductor companies. Bullish sentiment wavered on new doubts about the resolution of the US-China trade negotiations by the March 1 deadline after Commerce Secretary Wilbur Ross said the US is “miles and miles” away from a trade deal. The Dow Jones industrials slipped 0.1 percent while the S&P rose 0.1 percent. Nasdaq advanced 0.7 percent.

Data released Thursday was mostly surprisingly solid, starting with US weekly jobless claims, which fell sharply to the lowest level in nearly 50 years, when the labor force was half the size it is now. Unlike the weakness exhibited by most of the European counterparts released earlier in the day, the US PMI manufacturing flash reported noticeable acceleration in activity at the start of the new year, showing special strength in growth in new orders, rising employment and optimism, while the services sample reported steady and moderate growth.

December leading indicators slipped as expected to a reading of minus 0.1 percent, pulled down by last month’s stock market rout and a dramatic slowing in ISM manufacturing orders. The Kansas City Fed manufacturing index held steady in January after buckling in the previous month, remaining in expansionary territory though down 1 at 5, with export orders showing special weakness by contracting for the second month in a row. The EIA petroleum status report showed sizeable builds in oil and gasoline inventories of 8 and 4.1 million barrels, respectively, but WTI prices stalled only temporarily on the news and moved higher in subsequent trading.

Texas instruments advanced strongly after the company’s quarterly report, released after the market close Wednesday, beat expectations with a net income of $1.24 billion compared to $344 million in the fourth quarter a year ago, on revenue of $3.72 billion.

Copper and gold miner Freeport-McMoRan declined after the company missed analysts’ expectations. Bristol-Myers Squibb declined after the pharmaceutical company said it suffered another setback entering the market to treat lung cancer patients and was withdrawing its application for US approval of a combination of its Opdivo and Yervoy therapies as more data was needed. General Mills fell after the firm announced a recall of five-pound bags of its Gold Medal unbleached flour. American Airlines advanced after the company announced better than expected fourth quarter results. Southwest Airlines and JetBlue Airways both advanced, with both also beating earnings and revenue expectations.

European markets

With the exception of the UK, stocks moderately advanced in Europe, supported by gains in the semiconductor sector amid expectations of a sales pickup in the second half the year. Germany’s DAX rose 0.5 percent and French CAC rose 0.7 percent. The FTSE 100 declined 0.3 percent.

While overnight strength in the US and Asia lent a firmer tone, January PMI composite flashes released for France, Germany and the Eurozone presented a mostly disappointingly soft picture of the economy. The composite for France fell to the weakest level in more than 4 years and showed business activity continuing to contract in January, though a sharp drop in services to a 59-month low masked a surprising improvement back to expansion in manufacturing. It was the reverse for Germany, where the PMI composite continued in expansion thanks to a stronger than expected services sector, but manufacturing fell into contraction with the worst outturn in about 50 months. The Eurozone PMIs came in softer than expected for both components as well as the composite though all three managed to remain in expansion territory, albeit just barely.

Markets were also keenly attuned to comments by ECB chief Draghi following the ECB January policy announcement, which as expected itself remained unchanged, effectively reiterating the December statement. Draghi acknowledged that economic data has been weaker than expected and conceded that risks have shifted to the downside, as opposed to broadly balanced previously.

Chipmaker STMicro advanced strongly after the company’s forecast of a sharp fall in first quarter revenues was overshadowed by an upbeat forecast for the second half of this year. AMS, Siltronic and Infineon also advanced strongly. Vodafone declined following reported weakness in the telecommunications company’s South African operations. Danish pharmaceutical company Novozymes fell after it said Middle East markets were likely to remain weak this year. Airbus advanced after strong criticism from the aerospace company’s CEO of the UK’s handling of Brexit negotiations urging UK decision makers to avoid a no-deal Brexit and warning that the company could relocate business and jobs out of the country if they fail to do so.

Asia Pacific Markets

Asian stocks mostly advanced led by semiconductor companies, with overnight gains in the US on better than expected earnings overshadowing concerns about a global economic slowdown and US-China trade talks. The release of Japanese PMI manufacturing flash data showed the headline index falling to 50.0, down sharply from 52.6 in December, which if confirmed by the final data to be released at the end of the month means the end of nearly two and half years of expansion. Contributing to the fall in the overall index was a drop in new export orders at the sharpest rate since July 2016, signaling that the downturn in the global cycle could worsen further. Declines into contraction territory by output, new orders, backlog of work and the quantity of purchases also pointed to the broad-based depth and likely persistence of the slowdown.

The Nikkei declined 0.1 percent and the Topix advanced 0.4 percent. The Shanghai Composite rose 0.6 percent and the Hang Seng rose 0.4 percent. South Korea’s Kospi advanced 0.8 percent. Australia’s All Ordinaries rose 0.4 percent.

In Japan, semiconductor companies Tokyo Electron, Screen Holdings and Advantest advanced on news that US chipmaker Texas Instruments reported better than expected earnings. Kabu Securities soared after news reports that telecommunications company KDDI was considering investing in the company.

Chinese offshore oil producer CNOOC advanced after the company said its capital expenditure budget for 2019 was 70 to 80 billion yuan, most of it earmarked for development of new projects, with production targets for the year of 480 to 490 million barrels, 505 to 515 million for 2020 and 535 to 545 million in 2021. China Merchants Bank advanced after reporting a 14.8 percent year-on-year increase in earnings for 2018. Sands China declined after the casino operator said its fourth quarter earnings fell 11 percent. Alibaba Pictures Group advanced on news of its signing of a strategic cooperation agreement with Huayi Brothers Media. Nanjing Panda Electronics advanced after the company announced it expects its 2018 earnings to have increased up to 70 percent from the previous year. Sun Hung Kai Properties rose after it announced winning a tender for a 50-year land grant for HK$ 11.3 million.

In South Korea, memory chip maker SK Hynix advanced despite reporting quarterly earnings and revenue that missed expectations after the company said demand for mobile chips with larger memory capacity would lead to a pickup in sales in the second half of the year.

Looking forward

Germany will release its IFO survey for January, the UK releases its CBI distributive trades survey for January, and the US will release December durable goods orders and new home sales.

Global Stock Markets

 

Index

24 Jan 2019

Daily Change

% Change 2019

North America

 

 

 

 

United States

Dow

24553.24

-22.38

5.3

 

NASDAQ

7073.46

47.69

6.6

 

S&P 500

2642.33

3.63

5.4

Canada

S&P/TSX Comp

15280.78

72.45

6.7

Europe

 

 

 

 

UK

FTSE 100

6818.95

-23.93

1.3

France

CAC

4871.96

31.58

3.0

Germany

XETRA DAX

11130.18

58.64

5.4

Italy

MIB

19564.48

164.33

6.8

Spain

Ibex 35

9150.00

21.20

7.1

Sweden

OMX Stockholm 30

1488.40

9.68

5.7

Switzerland

SMI

8937.39

-19.80

6.0

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

5930.54

21.82

3.9

Japan

Nikkei 225

20574.63

-19.09

2.8

 

Topix

1552.60

5.57

3.9

Hong Kong

Hang Seng

27120.98

112.78

4.9

S. Korea

Kospi

2145.03

17.25

5.1

Singapore

STI

3190.73

19.62

4.0

China

Shanghai Comp

2591.69

10.69

3.9

Taiwan

TAIEX

9877.12

30.72

1.5

India

Sensex 30

36195.10

86.63

0.4

Data Source — Haver Analytics

 

 

 

Note: all releases are listed in local time.

Important Information

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