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On 22 March 2019 - US stocks fall and bonds rally after weak PMI surveys renew concerns about growth outlook

Anne D Picker

Anne D Picker - Econoday

Report finds no conspiracy or coordination between Trump campaign and Russian government in 2016 election.

US markets

US stocks fell sharply Friday to close down on the week after PMI surveys indicated that conditions have weakened across several major economies. The Dow fell 1.8 percent on the day and 1.3 percent on the week, the S&P dropped 1.9 percent on the day and 0.8 percent on the week, and the Nasdaq fell 2.5 percent on the day and 0.6 percent on the week. Nike posted a large decline after it reported better-than-expected earnings for the fiscal third quarter but advised that fourth quarter revenue would likely be impacted by currency moves. DowDuPont, Caterpillar, JPMorgan Chase, and Goldman Sachs were also among the weaker performers Friday.

Special Counsel Robert Mueller submitted his report on Russian interference in the 2016 presidential election to US Attorney General William Barr after the close of trading Friday, with some of the details of the report made public a short time ago. In a summary letter, the Attorney General advised the report did not establish that President Trump’s campaign conspired or coordinated with the Russian government in its efforts to interfere with the election. Although the report did not resolve whether President Trump had obstructed justice by trying to influence the outcome of investigations, Attorney General Barr has found that there is not sufficient evidence to conclude that such an offense had been committed.

Preliminary PMI survey results for March indicate that conditions have weakened so far this month in both the manufacturing and services sectors. The manufacturing headline index fell from 53.7 in February to a flash estimate of 52.5 in March, while the services headline index fell from 56.2 to a flash estimate of 54.8. together this resulted in the composite headline index falling from 55.8 to a flash estimate of 54.3.  If confirmed by final data scheduled for release early next month, this would be the lowest level in the composite index for six months. Hosing data published Friday, however, showed a much stronger-than-expected increase in existing home sales in February, up 11.8 percent on the month.

Canadian data published Friday showed modestly stronger price pressures in February but weaker retail sales growth in January, doing little to suggest that officials at the Bank of Canada will consider a change to policy settings in the near-term. Canada’s consumer price index advanced 0.7 percent on the month in January, up from just 0.1 percent in December, with the inflation rate picking up from 1.4 percent to 1.5 percent. Core inflation also ticked higher from 1.9 percent to 2.0 percent. The value of retail sales fell for the third month in a row in January, down 0.3 percent, with year-on-year growth also slowing from 1.7 percent to 1.1 percent, though growth in volumes picked up and suggest that consumer spending is likely to make a positive contribution to GDP growth in the three months to March.

These data reflect observations at the close of trading Friday. Gold rose US$5.10 to US$1,318.70 while dated Brent spot crude fell US$0.83 to US$67.03. The US dollar fell sharply against the pound and the yen, was flat against the Swiss franc, but advanced against other major currencies. Concerns about weaker economic growth prompted strong demand for government bonds, with the yield on the US Treasury 30-year bond falling 9 basis points to 2.87 percent and the yield on the 10-year note down 10 basis points to 2.44 percent.

European markets

Most European markets closed lower Friday and on the week, with flash PMIs indicating further weakness in the manufacturing sector in key European economies. The FTSE fell 2.0 percent on the day and 0.3 percent on the week, the CAC fell 2.0 percent on the day and 2.8 percent on the week, and the DAX closed down 1.6 percent on the day and 2.8 percent on the week. Government bond yields also declined sharply on Friday, with the yield on the German 10-year bond falling below zero for the first time since 2016.

Flash PMI surveys for March showed a drop in the composite index for the Eurozone, Germany and France. In Germany, the surveys indicate that conditions in the services sector have weakened so far in March but remain relatively solid, whereas they point to a sharp contraction in the manufacturing sector, with the survey’s measure of manufacturing output falling to its lowest level in more than six years. The French survey showed a bigger contraction in the services sector and a renewed deterioration in manufacturing conditions. The Eurozone survey also indicates that the regional manufacturing sector has contracted at a sharper rate in March, with the headline index for the sector falling to its lowest level in nearly six years, though the headline index for the services sector was relatively strong and little changed from February. In aggregate, the PMI surveys for the region indicate that Eurozone real GDP will record growth of just 0.2 percent in the three months to March, suggesting that more aggressive policy support may be considered by the European Central bank in coming months.

The pound rallied strongly Friday after the European Union agreed to extend the United Kingdom’s withdrawal beyond the scheduled date March 29. If the UK parliament approves the government’s Brexit deal in the coming week, withdrawal will be delayed until May 22, but if this deal is not approved then the EU has given the UK until April 12 to decide whether it will seek a longer delay, withdraw with no deal in place, or revoke its decision to withdraw. Reports over the weekend suggest that government members may challenge the leadership of Prime Minister Theresa May after a large public protest called for Brexit to be abandoned.

Asia Pacific Markets

Most Asian markets closed higher Friday and advanced to varying degrees on the week. The Shanghai Composite index rose 0.1 percent on the day and outperformed all other major global markets with an increase of 2.7 percent on the week. Japanese markets also rose, with the Nikkei and the Topix indices up 0.1 percent and 0.2 percent respectively on the day, and 0.8 percent and 0.9 percent respectively on the week. Hong Kong’s Hang Seng index gained 0.6 percent on the day and 0.3 percent on the week, while Australia’s All Ordinaries index rose 0.4 percent on the day and 0.3 percent on the week.

Japanese data published Friday showed headline and underlying measures of inflation remained steady and subdued in February, while the flash PMI survey indicates that conditions in the manufacturing sector have remained weak so far in March. Headline CPI inflation was unchanged at 0.2 percent in February, with the Bank of Japan’s preferred measure of underlying inflation also unchanged at 0.4 percent. Excluding food prices, the CPI index rose 0.7 percent on the year in February, down from 0.8 percent in January, and there is little evidence that price pressures are building significantly for any category of consumer spending. The PMI flash survey showed the headline index unchanged from February’s level and, if confirmed by final data early next month, indicates that the sector has contracted for a second consecutive month.

Looking forward

Central Bank activities

27-Mar

New Zealand

Reserve Bank of New Zealand Announcement

The following indicators will be released this week...

Europe

25-Mar

Germany

Ifo Survey (March)

26-Mar

France

Business Climate Indicator (March)

 

 

GDP (Q4 final)

 

Germany

GfK Consumer Climate (April)

27-Mar

France

PPI (February)

 

Italy

Business and Consumer Confidence (March)

 

UK

CBI Distributive Trades (March)

28-Mar

Eurozone

EC Economic Sentiment (February)

 

 

M3 Money Supply (February)

 

Germany

CPI (March)

29-Mar

Eurozone

HICP Flash (March)

 

France

Consumer Manufactured Goods Consumption (February)

 

 

CPI (March)

 

Germany

Unemployment Rate (March)

 

Italy

CPI (March)

 

Switzerland

KOF Swiss Leading Indicator (March)

 

UK

GDP (Q4 final)

Asia Pacific

25-Mar

Singapore

CPI (February)

26-Mar

Hong Kong

Merchandise Trade (February)

 

New Zealand

Merchandise Trade (February)

 

Singapore

Industrial Production (February)

29-Mar

Japan

Industrial Production (February)

 

 

Retail Sales (February)

 

 

Unemployment Rate (February)

31-Mar

China

CFLP Manufacturing PMI (March)

Americas

26-Mar

US

Consumer Confidence (February)

 

 

Housing Starts (February)

 

 

S&P Corelogic Case-Shiller HPI (January)

27-Mar

Canada

Merchandise Trade (January)

 

US

International Trade (January)

28-Mar

US

GDP (Q4 Final)

29-Mar

Canada

Monthly GDP (January)

 

US

New Home Sales (February)

 

 

Personal Income (February) and Outlays (January)

Global Stock Markets

 

Index

Mar 22 2019

Daily Change

% Change Daily

North America

United States

Dow

25502.32

-460.19

-1.8

 

NASDAQ

7642.67

-196.29

-2.5

 

S&P 500

2800.71

-54.17

-1.9

Canada

S&P/TSX Comp

16089.33

-155.26

-1.0

Europe

UK

FTSE 100

7207.59

-147.72

-2.0

France

CAC

5269.92

-108.93

-2.0

Germany

XETRA DAX

11364.17

-185.79

-1.6

Italy

MIB

21078.76

-294.30

-1.4

Spain

Ibex 35

9199.4

-156.20

-1.7

Sweden

OMX Stockholm 30

1576.87

-28.16

-1.8

Switzerland

SMI

9319.42

-134.63

-1.4

Asia/Pacific

Australia

All Ordinaries

6280.87

27.38

0.4

Japan

Nikkei 225

21627.34

18.42

0.1

 

Topix

1617.11

2.72

0.2

Hong Kong

Hang Seng

29113.36

41.80

0.1

S. Korea

Kospi

2186.95

2.07

0.1

Singapore

STI

3212.1

-1.55

0.0

China

Shanghai Comp

3104.15

2.69

0.1

Taiwan

TAIEX

10639.07

29.52

0.3

India

Sensex 30

38164.61

-222.14

-0.6

*Markets closed
Source: Haver Analytics

Note: all releases are listed in local time.

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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.