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On 25 July 2019 - US, Europe off on earnings, ECB; Asia gains, with Australia leading

Anne D Picker

Anne D Picker - Econoday

ECB not quite dovish enough to meet market expectations.

US markets

US stocks fell Thursday on soft quarterly earnings, and on disappointment that the European Central Bank didn’t deliver a more dramatic shift in its policy stance toward easing. The Dow industrials slipped 0.5 percent, the S&P 500 fell 0.5 percent, and the NASDAQ declined by 1 percent. 

The ECB shifted its guidance, and appeared to signal a rate cut in September, but policy-makers dashed market hopes for a more specific, aggressive, or immediate policy change.

Auto shares suffered, led by a 7.5 percent drop in Ford Motor, after an earnings miss and more gloomy full-year forecast. Tesla dropped 13.7 percent after an earnings and revenue miss, and news one of its founders would step down. Chip shares led the tech sector lower, with Xilinx off 3.4 percent on a weak forecast which was attributed to US sanctions on China’s Huawei. Facebook dropped 2 percent after it said its growth would be hit by new privacy regulations. Energy and materials shares also suffered, with Dow Chemical a big downer, off 3.8 percent.

On the positive side, network hardware maker Netgear rallied 17.2 percent on an earnings beat and upward guidance. Homebuilder Meritage rose 18.2 percent on a big earnings and revenue beat, and led the building sector higher. 

In economic news, US durable goods orders rose by 2.0 percent, well above expectations, and orders surged by 1.2 percent ex-transportation. Most notable was a rare 1.9 percent jump in core capital goods orders. News on trade in goods, meanwhile, was not as good: Exports dropped 2.7 percent in June, with imports down 2.2 percent. The more severe contraction in exports (totaling $136.3 billion) than imports ($210.5 billion) makes for a deeper-than-expected $74.2 billion goods gap in June, and will have forecasters marking down their net export estimates for tomorrow's second-quarter GDP report.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude fell 11 cents to US$63.15 while gold fell US$9.42 to US$1,414.36. The US dollar rose against most major currencies. The yield on the US Treasury 30-year bond yield was up 3 basis points at 2.61 percent while the yield on the 10-year note was up 3 basis points at 2.08 percent.

European markets

European equities slipped Thursday on bearish company earnings, weak Ifo data, and disappointment that European Central Bank President Mario Draghi did not meet the market’s super-dovish expectations. The Europe-wide STOXX 600 fell 0.6 percent, the German DAX fell 1.3 percent, the French CAC fell 0.5 percent, and the UK FTSE 100 slipped 0.2 percent.  

The ECB announced no changes to key interest rates, and there was no explicit discussion of rate cuts or new asset purchases at the Governing Council meeting. However, the central bank did take the first steps towards a full-blown ease by modifying its forward guidance on interest rates. Previously this just laid down a timeframe for a zero-refi rate “at least through the first half of 2020”. This has now been amended to include the possibility of lower rates.

Travel and leisure, health care, and food and beverage shares outperformed, while autos, chemicals, and media underperformed in the Euro Stoxx 600. Among top names reporting results, Diageo, the drinks giant, fell 3.4 percent, and consumer goods maker Unilever fell 2 percent on disappointing sales and earnings. On the positive side, pharma AstraZeneca rose 7.8 percent after raising its sales forecast. 

In economic news, German economic sentiment deteriorated again in July, according to the latest survey from Ifo. At 95.7, the headline climate indicator was 1.8 points short of its minimally stronger revised June mark, well below the market consensus and at its lowest level since May 2010. The measure has now fallen for four consecutive months and in ten of the last eleven.

Asia Pacific Markets

Major Asian markets closed higher Thursday, though moves were generally modest. Australia’s All Ordinaries index was the strongest regional performer, advancing 0.6 percent on the day to a new 12-year high after Reserve Bank of Australia Governor Philip Lowe said “it is reasonable to expect an extended period of low interest rates.” After cutting policy rates at the last two meetings, Lowe also said that officials are prepared to lower rates further if necessary but argued that the RBA’s current inflation target should remain intact. The Shanghai Composite index also posted a solid gain, up 0.5 percent, while Hong Kong’s Hang Seng index advanced 0.2 percent. The Nikkei and Topix indices both closed up 0.2 percent.

Hong Kong trade data released Thursday provided further evidence of weak trade flows in June, in line with data published elsewhere in the region. Exports dropped 9.0 percent on the year in June after falling 2.6 percent in May, while imports declined 7.5 percent after falling 4.3 percent previously, resulting in the trade deficit widening from HK$34.7 billion to HK$55.2 billion. Exports to mainland China and the United States were again weak, and officials cautioned that near-term export performance would remain constrained by US-China trade tensions.

Looking forward

In Asian economic data Friday, Singapore industrial production is due. In Europe, French PPI and Italian business and consumer confidence data will be released. In the US, the US GDP report will be released.

Global Stock Markets

 

Index

25 Jul 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

27140.98

-128.99

-0.5

 

NASDAQ

8238.54

-82.96

-1.0

 

S&P 500

3006.28

-13.28

-0.4

Canada

S&P/TSX Comp

16483.26

-128.58

-0.8

Europe

 

 

 

 

UK

FTSE 100

7489.05

-12.41

-0.2

France

CAC

5578.05

-27.82

-0.5

Germany

XETRA DAX

12362.1

-160.79

-1.3

Italy

MIB

21903.29

-177.03

-0.8

Spain

Ibex 35

9289.9

-39.80

-0.4

Sweden

OMX Stockholm 30

1607.2

-5.86

-0.4

Switzerland

SMI

9877.03

-30.65

-0.3

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6901.85

39.46

0.6

Japan

Nikkei 225

21756.55

46.98

0.2

 

Topix

1577.85

2.76

0.2

Hong Kong

Hang Seng

28594.3

70.26

0.2

S. Korea

Kospi

2074.48

-7.82

-0.4

Singapore

STI

3381.26

12.82

0.4

China

Shanghai Comp

2937.36

14.08

0.5

Taiwan

TAIEX

10941.41

5.65

0.1

India

Sensex 30

37830.98

-16.67

0.0

Note: all releases are listed in local time.

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