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On 30 October 2019 - US up after Fed policy announcement; Europe firm; Asia off

Anne D Picker

Anne D Picker - Econoday

Powell comments allay some concerns about hawkish Fed shift.

US markets

US equities ended slightly firmer Wednesday and well above afternoon lows after the Federal Reserve delivered a 25 basis point rate cut and appeared to signal a pause in further rate cuts. The Dow industrials rose 0.4 percent while the S&P 500 and NASDAQ both gained 0.3 percent.

The Fed’s statement and Fed Chair Jay Powell’s initial comments were seen as leaning hawkish. That included his remark that risks to the outlook had moved in a positive direction. Concerns that the Fed might actually consider raising rates as its next move were somewhat allayed by Powell’s subsequent comment that inflation would need to appear headed higher before the Fed would tighten, and policy-makers “really don’t see that now.”

Markets were supported by Treasury Secretary Steven Mnuchin’s comment that a US-China interim trade pact was still likely next month, even though the anticipated meeting of President Trump and Chinese President Xi will not occur in Santiago, Chile, due to cancellation of the APEC meeting.

Health care, consumer discretionary, and technology sectors outperformed while energy and materials lagged the most. Falling oil prices depressed energy stocks.

Among companies reporting, Amgen, the biotech, rose 0.9 percent after raising its guidance on strong organic growth, despite a miss in the current quarter. General Electric rallied 11.6 percent after raising its guidance and reporting a strong growth outlook. CROX, the shoe company, jumped 15.3 percent on a big earnings beat. Yum Brands, the fast food company, dropped 5.7 percent on an earnings miss and weak same-store sales at KFC and Pizza Hut.

In US economic news, third-quarter gross domestic product was solid but with one uneven edge, at an inflation adjusted 1.9 percent annual rate which is near the top end of Econoday's consensus range and only 1 tenth below the second quarter's 2.0 percent rate. Real consumer spending rose at a 2.9 percent pace despite a very tough comparison with the second quarter's unusually strong 4.6 percent showing, yet the negative in the report was business investment which contracted for a second straight quarter. In other news, ADP estimated that private payroll growth in Friday's employment report for October will rise 125,000 which hit Econoday's consensus for ADP's estimate.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 98 cents to US$60.55, while gold rose by US$7.00 to US$1,498.30. The US dollar fell against most major currencies. The US Treasury 30-year bond yield was down 8 basis points to 2.25 percent while the 10-year note yield fell 5 basis points to 1.77 percent.

European markets

Most major European equities indexes edged up Wednesday on earnings news in cautious trading as markets awaited the Federal Reserve’s policy announcement. The Europe-wide STOXX 600 rose 0.1 percent, the German DAX fell 0.2 percent, the French CAC rose 0.4 percent and the UK FTSE-100 gained 0.3 percent.

Bank stocks underperformed on disappointing earnings, with Spain’s Santander down 4.5 percent, Deutschebank down 6.5 percent, and Credit Suisse off 2.6 percent. On the positive side, L’Oreal, the French cosmetics company, rose 7.7 percent after outperforming market earnings expectations, to lift French stocks.

UK big-cap stocks outperformed, led by pharma, with GlaxoSmithKline up 2.4 percent on an earnings beat, and raised guidance, and AstraZeneca up 2.6 percent on news it would sell European rights to its schizophrenia drug. UK midcap stocks, which tend to rely on domestic sales, fell 0.3 percent on worries over effects of Brexit, after news the UK was headed to early elections.

In economic news, Eurozone economic sentiment (ESI) deteriorated again in October, the European Commission reported. At a softer than expected 100.8, the ESI was down a further 0.9 points and at its lowest level since the start of 2015. The headline dip was mainly attributable to worsening morale in both the household sector, which saw a 10-month low, and industry where the sub-index hit its weakest mark since July 2013. In a separate report, French flash gross domestic product rose by 0.3 percent over the period, in line with the growth rate in both the first and second quarters and a tick firmer than the market consensus. However, annual growth eased from 1.4 percent to 1.3 percent.

Asia Pacific markets

Most Asian markets closed lower Wednesday, with regional investors indicating caution ahead of the Federal Reserve rate decision and reports suggesting that progress on US-China trade discussions may be limited ahead. Regional data were broadly in line with expectations. The Shanghai Composite index fell 0.5 percent, Hong Kong’s Hang Seng index dropped 0.4 percent, and Australia’s All Ordinaries index underperformed with a 0.8 percent decline. Japanese markets were mixed after the release of retail sales data and ahead of the Bank of Japan policy meeting later in the week, with the Nikkei down 0.6 percent and the Topix up 0.2 percent.

Retail sales in Japan rose 9.1 percent on the year in September, picking up strongly from an increase of 1.8 percent in August and well above the consensus forecast for growth of 6.9 percent. Stronger year-on-year growth in headline retail sales in September was driven by a surge in spending ahead of an increase in consumption tax rates from 8 percent to 10 percent at the start of October and was broad-based across all categories. Car sales were particularly strong, up 16.9 percent on the year after increasing 2.2 percent previously.

Australia's headline consumer price index rose by 1.7 percent on the year in the three months to September, up from 1.6 percent in the three months to June and closer to the Reserve Bank of Australia's target range of 2.0 percent to 3.0 percent. Inflation has now been below this range for five consecutive quarters and for nine of the last ten quarters. Measures of core inflation, which exclude the impact of volatile price changes, were steady in the three months to September. Wednesday's data are broadly in line with RBA forecasts for underlying inflation to be "a little under 2.0 percent over 2020 and a little above 2.0 percent over 2021”. Officials' next policy meeting will take place next week.

Looking forward

On Thursday in Asia/Pacific, Japanese industrial production and the CFLP manufacturing index out of China are due as is a policy statement from the Bank of Japan. In Europe, Germany will post retail sales, France and Italy consumer prices with Italy also posting GDP. The Eurozone will post GDP and HICP inflation data as well as the unemployment rate. In North America, the US will post personal income and outlays, the employment cost index, as well as weekly jobless claims with producer prices and monthly GDP coming out of Canada.

Global stock markets

 

Index

30 Oct 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

27186.69

115.27

0.4

 

NASDAQ

8303.98

27.13

0.3

 

S&P 500

3046.77

9.88

0.3

Canada

S&P/TSX Comp

16501.43

83.29

0.5

Europe

 

 

 

 

UK

FTSE 100

7330.78

24.52

0.3

France

CAC

5765.87

25.73

0.4

Germany

XETRA DAX

12910.23

-29.39

-0.2

Italy

MIB

22646.08

-34.66

-0.2

Spain

Ibex 35

9284.5

-115.60

-1.2

Sweden

OMX Stockholm 30

1746.81

4.49

0.3

Switzerland

SMI

10254.95

-2.74

0.0

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6794.7

-53.77

-0.8

Japan

Nikkei 225

22843.12

-131.01

-0.6

 

Topix

1665.9

3.22

0.2

Hong Kong

Hang Seng

26667.71

-119.05

-0.4

S. Korea

Kospi

2080.27

-12.42

-0.6

Singapore

STI

3207.92

10.88

0.3

China

Shanghai Comp

2939.32

-14.86

-0.5

Taiwan

TAIEX

11380.28

46.41

0.4

India

Sensex 30

40051.87

220.03

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.