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On 23 August 2019 - Global shares: US, Europe off as US-China trade war heats up; Asia better

Anne D Picker

Anne D Picker - Econoday

Fed's Powell disappoints as he is not dovish enough.

US markets

US stock indexes plunged Friday in a big risk-off move as the US-China trade dispute escalated, with China announcing retaliatory tariffs, as it promised, and President Trump following suit with more tariffs on China in response. Trump ordered US companies to curtail business with China and to move their operations in China back into the US, though it was unclear what effect the statement would have. The Dow industrials dropped 2.4 percent, the S&P 500 lost 2.6 percent, the NASDAQ fell 3.0 percent, and the Russell 2000 was down 3.1 percent.

Markets reacted with disappointment that Fed Chairman Jay Powell did not make a more dovish statement at the Fed’s Jackson Hole conference, even though expectations for a 25-basis point cut in September remain largely intact. Powell reiterated the Fed will "act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective." But he stopped short of sending the kind of aggressive easing signal many were hoping for. Powell told Jackson Hole participants further rate cuts will depend on how he and fellow policy-makers assess the economy and an array of domestic and international influences.

Technology shares, including semiconductors, which are highly sensitive to the US-China trade war, led the declines. Oil, autos and consumer discretionary shares were also among the worst performers. Defensive stocks including utilities held up better but still weakened, while Treasuries rallied, and the dollar fell, in particular vs. the yen, in a flight from risk.

Stocks in focus included Pivotal Software, up 9 percent, after it agreed to be acquired by VMWare, a software company. Carbon Black, another software firm, rose 6 percent after news it too would be acquired by VMWare. Red Robin Gourmet Burgers rose 6 percent after an earnings and revenue beat. Salesforce.com rose 2.3 percent after an earnings beat and improved guidance.

Notable losers included Foot Locker, the shoe retailer, down 19 percent after its earnings, revenue, and sales missed expectations. Kemper Insurance was off 11 percent on an analyst downgrade. VMware fell 10 percent on concern over its acquisitions.

In economic news, data showed US new home sales, much like existing home sales, are struggling to gain traction. July's annual sales rate of 635,000 is slightly below Econoday's 645,000 consensus but is upstaged by a very sharp upward revision to June which is now, pending further revisions, at a 728,000 rate and a new expansion high. Yet the three-month average, which is central when discussing home sales, actually declined in July, to 655,000 versus 663,000 in June. This average peaked at roughly 670,000 in March and April, which were the best months so far this year for home sales.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude oil fell 64 cents to US$59.34, while gold rose US$29.10 to US$1537.60. The US dollar fell against most major currencies. The yield on the US Treasury 30-year bond yield fell 8 basis points to 2.03 percent while the yield on the 10-year note declined by 8 basis points to 1.53 percent.

European markets

European stocks reversed initial gains to end down Friday as the US-China trade war escalated. The Europe-wide STOXX 600 fell 0.8 percent, the German DAX fell 1.2 percent, the French CAC was off 1.1 percent, and the FTSE-100 was off 0.5 percent.

Markets also reacted poorly to comments from Fed Chairman Jay Powell that were judged insufficiently dovish, even though Powell suggested the Fed was likely to cut rates in the fall.

Autos and parts led the declines on the US-China news, along with oil and gas, chemicals, and banks. All sectors except real estate closed lower, while utilities and travel and leisure shares also held up better. Oil supermajors Shell (down 0.9 percent), and BP (down 1.3 percent) were big downers for the European stock indexes. In corporate news, metals distributor Kloeckner rallied 7 percent after a report it may be acquired by Thyssenkrupp, the industrial engineering and steel firm, which rose 1.0 percent.

Asia Pacific markets

Major Asian markets recorded moderate increases Friday to close the week with solid gains. Upcoming comments from Federal Reserve Chair Jerome Powell remained a key focus for investors with incoming regional data doing little to shift market sentiment. Tensions between Japan and South Korea escalated after the South Korean government announced it would scrap an intelligence-sharing agreement between the two countries in response to recent trade restrictions imposed by the Japanese government.

The Shanghai Composite index and Hong Kong’s Hang Seng index were among the strongest regional performers on the day, both up 0.5 percent to extend their gains on the week to 2.6 percent and 1.7 percent respectively. Australia’s All Ordinaries index also rose on the day, up 0.3 percent, and finished the week 2.0 percent higher. Japan’s Nikkei and Topix indices advanced 0.4 percent and 0.3 percent respectively on Friday and closed the week up 1.4 percent and 1.1 percent respectively.

Japanese inflation data released today showed a fall in headline inflation and little change in measures of underlying inflation in July, providing more evidence that reaching the Bank of Japan's 2.0 percent inflation target remains a slow process. The headline consumer price index rose 0.5 percent on the year in July, down from 0.7 percent in June, while the BoJ’s preferred measure of underlying inflation, CPI excluding fresh food and energy prices, rose 0.6 percent on the year, up slightly from 0.5 percent. At their most recent meeting, held late July, BoJ officials left policy settings on hold, reflecting their assessment that inflation is still "likely to increase gradually" towards 2.0 percent. BoJ Governor Haruhiko Kuroda argued that there has not been a loss of momentum towards meeting the inflation target but promised that additional policy easing would be delivered "without hesitation" if this momentum were lost. It remains unclear, however, what officials would consider to be a loss of momentum.

Singapore inflation data also showed weaker headline inflation in July, with the consumer price index up 0.4 percent on the year after increasing 0.6 percent in June. The Monetary Authority of Singapore's preferred measure of core inflation, which excludes the cost of accommodation and private road transport, increased 0.8 on the year in June, down from growth of 1.2 percent in June and its lowest level since 2016.  MAS officials also downgraded their near-term inflation forecasts slightly.

New Zealand retail trade sales volumes rose 0.2 percent on the quarter in the three months to June (seasonally adjusted), slowing from growth of 0.7 percent in the three months to March, with year-on-year growth falling from 3.3 percent to 2.9 percent. Slower headline year-on-year growth was broad-based across major categories of spending. This data will reinforce the Reserve bank of New Zealand's view that policy needs to remain accommodative and could strengthen the case for further policy easing in coming months.

Looking forward

The following indicators will be released this week...

Europe

 

 

Aug-26

Germany

Ifo Survey (August)

Aug-27

France

Business Climate Indicator (August)

 

Germany

GDP (Q2)

Aug-28

Eurozone

M3 Money Supply (July)

 

Germany

Gfk Consumer Climate (September)

 

Italy

Business and Consumer Confidence (August)

Aug-29

Eurozone

EC Economic Sentiment (August)

 

France

Consumer Goods Consumption (July)

 

 

GDP (Q2 revised)

 

Germany

CPI (August)

Aug-30

Eurozone

HICP Flash (August)

 

 

Unemployment Rate (July)

 

France

CPI (August)

 

 

PPI (July)

 

Germany

Retail Sales (July)

 

Italy

CPI (August)

 

Switzerland

Swiss Leading Indicator (August)

Asia Pacific

 

 

Aug-26

Hong Kong

Merchandise Trade (July)

 

New Zealand

Merchandise Trade (July)

 

Singapore

Industrial Production (July)

Aug-29

Australia

Private New Capital Spending (Q2)

Aug-30

India

GDP (Q2)

 

Japan

Industrial Production (July)

 

 

Retail Sales (July)

 

 

Unemployment Rate (July)

Aug-31

China

CFLP Manufacturing PMI (August)

 

 

 

Americas

 

 

Aug-26

US

Durable Goods Orders (July)

Aug-27

US

Consumer Confidence (August)

 

 

S&P Corelogic Case-Shiller HPI (June)

Aug-29

US

GDP (Q2 preliminary)

 

 

International Trade in Goods (July)

 

 

Jobless Claims (Week of August 24)

 

 

Pending Home Sales (July)

Aug-30

Canada

GDP (Q2)

Global stock markets

 

Index

23 Aug 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

25628.9

-623.34

-2.4

 

NASDAQ

7751.77

-239.62

-3.0

 

S&P 500

2847.11

-75.84

-2.6

Canada

S&P/TSX Comp

16037.58

-215.88

-1.3

Europe

 

 

 

 

UK

FTSE 100

7094.98

-33.20

-0.5

France

CAC

5326.87

-61.38

-1.1

Germany

XETRA DAX

11611.51

-135.53

-1.2

Italy

MIB

20473.86

-343.13

-1.7

Spain

Ibex 35

8649.5

-66.90

-0.8

Sweden

OMX Stockholm 30

1522.85

-12.66

-0.8

Switzerland

SMI

9744.98

-60.52

-0.6

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6614.32

21.30

0.3

Japan

Nikkei 225

20710.91

82.90

0.4

 

Topix

1502.25

4.19

0.3

Hong Kong

Hang Seng

26179.33

130.61

0.5

S. Korea

Kospi

1948.3

-2.71

-0.1

Singapore

STI

3110.35

-17.39

-0.6

China

Shanghai Comp

2897.43

13.99

0.5

Taiwan

TAIEX

10538.11

8.33

0.1

India

Sensex 30

36701.16

228.23

0.6

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.