US inflation accelerates in July
US consumer prices increased 0.3% m-o-m in July, the US Labor Department said in a report. The indicator came in line with the median consensus, up from 0.1% in June. In annual terms, inflation accelerated to 1.8% from 1.6%. Meanwhile, prices, excluding energy and food prices (the Core CPI), increased 0.3% m-o-m and 2.2% y-o-y compared to 0.2% m-o-m and 2.1% y-o-y projected. A faster pace of inflation could be a reason for the Fed to keep interest rates unchanged, experts speculate. Meanwhile, the market, on average, expects three more rate cuts until year end. US energy prices rose 1.3% m-o-m in July. Food prices were flat m-o-m, while tobacco and clothing prices increased 1.0% and 0.4%, respectively. Housing prices were up 0.8%, while healthcare services prices rose 0.5%. Inflation-adjusted hourly pay climbed 1.3% y-o-y in July, following a 1.5% y-o-y increase in the previous month.
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German investor confidence reaches the 2011 low
Germany’s Investor Confidence Index for the next six months dropped from -24.5 in July to -44.1 in August, ZEW data show. This is the lowest reading since December 2011, and the index has been negative for four straight months. The estimate of Germany’s economic conditions also deteriorated substantially, with the ZEW index declining from -1.1 in July to -13.5. Trends in economic sentiment points to a substantial deterioration in Germany’s economic prospects. The escalation in the US-China trade conflict, risks associated with competitive currency devaluation and the rising odds of hard Brexit will put pressure on economic growth which remains weak. This will affect German exports and industrial output, ZEW President Achim Wamba claimed. At the same time, the ZEW-calculated Business Confidence Index for the Eurozone decreased from -20.3 in July to -43.6 in August. The Eurozone’s Current Conditions Index dropped by 3.9 to -14.5.
China industrial output growth slows sharply
China’s industrial output jumped 4.8% y-o-y in July, the National Bureau of Statistics of China (NBS) reported. The pace of growth slowed down substantially from 6.3% y-o-y in June, reaching a 17-year low. Production in the Chinese mining industry increased by 6.6% in July, and rose 4.5% in the manufacturing sector. Electricity output jumped 6.9%. Production of agricultural products grew 1.5%, output of food, textile, chemicals, pharmaceuticals and industrial equipment rose by 7.3%, 1.2%, 3.8%, 7.4% and 7.6%, respectively. At the same time, automobile production contracted by 4.4%. China’s retail sales jumped 7.6% y-o-y in July. Sales of consumer goods, food, beverages, clothing and cosmetics climbed by 7.4%, 9.9%, 9.7%, 2.9% and 9.4%, respectively. Automobile and gasoline sales dropped by 2.6% and 1.1%, respectively. During the first seven months of 2019, fixed asset investment grew by 5.7% y-o-y, down from 5.8% y-o-y in January-June.
US: intensions of authorities drive up investor optimism
Key US stock benchmarks landed in the black on Tuesday, August 13, although geopolitical risks (in Hong Kong and Argentina) persisted, and investor optimism was driven by reports that US authorities intend to postpone the introduction of additional tariffs on Chinese products until December 15.
The tariffs are reported to affect such items as cellphones, screens, game consoles, notebooks, some toys and separate clothing and footwear items. It should be noted that the list of products, which the Trump administration intends to postpone tariffs until mid-December, is largely traditional holiday gifts. A conclusion can be drawn that Washington is going to make advances to forestall any disruptions or price hikes on the domestic market ahead of Christmas.
Yesterday’s macro showed that the US CPI (seasonally adjusted) rose 0.3% m-o-m in July, as expected, while the core CPI also grew 0.3% m-o-m last month vs. expectations of a 0.2% m-o-m increase.
Recapping the indices, the Dow Jones Industrial Average surged 1.44% to 26,279.91, the S&P 500 advanced 1.48% to 2,926.32 and the Nasdaq closed 1.95% higher at 8,016.36.
In commodities, September NYMEX WTI jumped 4% to USD 57.10/bbl, whereas December COMEX gold fell 0.2% to USD 1,514.10/oz. The 10-year US government bond yield stood at 1.68%.
The media wired that US television company CBS and media holding Viacom agreed to merge. The deal will result in the establishment of ViacomCBS, a ko with annual revenue exceeding USD 28 bn. As a result, CBS shares jumped 1.39%, while Viacom gained 2.4%.
Also on the plus side, insurer Genworth Financial spiked 15.8% on news that it agreed to sell a majority stake in Genworth MI Canada for USD 1.8 bn.
Public utilities company Pacific Gas & Electric (PG&E), which is going to file a bankruptcy exit plan, was well bid. The stock surged 1.25% as Andrew Vesey was appointed head of the company’s electricity unit. It should be noted that this position was vacant for a year.
A bullish engulfing pattern has shaped up on the S&P 500 daily chart, so the index could extend gains over the next few sessions.
Europe: benchmarks reverse higher
Key European stock indices landed moderately in the green on Tuesday, August 13. Notably, regional equities traded lower at the opening amid global risk-off sentiment, but reversed to the upside later in the session after the US administration announced a postponement of an additional tariff on Chinese imports.
The US Trade Representative’s office said that a number of Chinese products could be exempt from a 10% tariff for healthcare, security, etc. reasons, while tariffs on electronic devices such as mobile phones and laptops will be postponed until mid-December.
The most trade-sensitive sectors such as commodity and automotive names posted the biggest gains on the news.
As regards macro data, Germany’s July CPI (final) came in at 0.5% m-o-m and 1.7% y-o-y, in line with expectations, while the UK’s unemployment rate stood at 3.9% in June, up from 3.8% in the previous month and exceeding the median consensus.
Recapping the benchmarks, the UK’s FTSE 100 picked up 0.3%, the French CAC 40 advanced 1.0%, the German DAX firmed 0.6%, and the Italian FTSE MIB rose 1.4%. The regional indicator Stoxx 600 closed 0.5% higher at 372.40.
German consumer goods maker Henkel plunged 7.1% after trimming full-year sales and profit guidance.
Mining giant ArcelorMittal surged 5.5% on the back of positive trade news.
Norwegian fish product supplier SalMar soared 6.7% as equity analysts at DNB upgraded their rating on the stock.
German meal-kit delivery firm HelloFresh shot up 12.3% on news that its profits finally moved into the black.
Key European stock indices have been trading moderately lower during the first half of Wednesday, August 14, as bearish sentiment prevailed after downbeat Eurozone manufacturing output and German GDP data came out, raising investor concerns about the region’s economic outlook.
By 09:10 GMT, the UK’s FTSE 100 slipped 0.14%, the German DAX eased 0.57%, and the French CAC 40 retreated 0.60%. The regional indicator STXE 600 was off 0.37% at 372.40.
The daily chart shows that the German DAX has broken through a mid-term rising band and is forming a bearish flag. As a result, another leg of the downtrend could be expected in the short term.
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Asia: equities rise on Trump narrative
Asian stock indices closed mostly in the green on Wednesday, August 14, on the heels of Donald Trump’s comments that the US will postpone a tariff on an additional list of Chinese products until December 15. The list could include mobile phones, laptops, television sets and some toys.
On the macro data front, Australia’s Consumer Confidence Index for August rose 3.6% vs. a 4.1% decline in the previous month. In Japan, June machinery orders spiked 13.9% m-o-m compared to -1.3% m-o-m expected, while in y-o-y terms, the indicator was up 12.5% vs. -0.6%. In South Korea, the unemployment rate stood at 4% in July, unchanged from a month earlier.
In China, retail sales were up only 7.6% y-o-y in July compared to 9.8% y-o-y in the previous month and the 8.6% y-o-y consensus forecast. Moreover, manufacturing output increased 4.8% y-o-y in July, while analysts, on average, expected 5.8% y-o-y.
The Japanese Nikkei 225 advanced 0.98%, the Chinese Shanghai Composite added 0.42%, Hong Kong’s Hang Seng ticked up 0.08%, the South Korean KOSPI firmed 0.65%, while the Australian S&P/ASX 200 closed 0.42% higher.
The S&P/ASX 200 standout advancers included Eclipx Group and CSL Limited, which soared 7.03% and 6.67%, respectively. On the other side of the spectrum, Pact Group and Saracen Mineral sank 17.08% and 9.28%.
The Nikkei 225 gainers were led by Taiyo Yuden and Dainippon Screen, which surged 6.27% and 5.89%, respectively. Among the decliners, Odakyu Electric Railway and Chubu Electric Power retreated 2.25% and 1.91%.
Apple component suppliers outperformed, with Taiyo Yuden and Murata Manufacturing gaining over 2.8%.
Semiconductor makers were well bid, with Screen Holdings and Tokyo Electron adding over 1.7%.
In the Australian banking sector, Australia & New Zealand Banking, Commonwealth Bank and National Bank of Australia ended in the red, while Westpac picked up 0.26%.
Australia’s Oil Search added 0.86%, tracking yesterday’s rebound in oil prices.
Tech stocks enjoyed demand, with Sunny Optical и AAC rising over 3%.
From a technical standpoint, the Hang Seng is testing the lower end of a descending band again in the vicinity of 25,290.
Oil prices have decreased on Wednesday after rallying yesterday as worries about further escalation in the US-China trade conflict abated. The Trump administration said on Tuesday that it intends to postpone a 10% tariff on some Chinese exports until mid-December. Meanwhile, President Donald Trump claimed that he, in turn, expects Beijing to deliver on promises to boost purchases of US agricultural products.
Oil was depressed by today’s Chinese statistical data, according to which industrial output reached a 17-year low in July. In addition, the API said that US inventories showed a 3.7 mn bbl build last week, although analysts on average expected a 2.3 mn bbl drawdown. The EIA petroleum status report is due out at 14:30 GMT today.
Non-ferrous metals have on average traded lower on the LME, while gold dropped to USD 1,510/oz after rising sharply in the previous sessions.
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