Bank of England trims growth forecasts
The Bank of England’s Monetary Policy Committee held its August meeting, at which it decided to keep the main interest rate on hold at 0.75%. Moreover, the regulator said it would continue to purchase government and corporate bonds at a pace of GBP 435 bn (USD 526.5 bn) and GBP 10 bn, respectively. Policymakers highlighted that global trade tensions have intensified and global activity has remained soft in recent months. On a separate note, they pointed out that an increase in the perceived likelihood of a no-deal Brexit has caused macro data volatility. If a hard Brexit scenario materialized, the country would face a weak pound sterling, faster inflation and slower growth. Assuming a smooth Brexit, internal demand could pick up, with the regulator likely to consider increases in interest rates, at a gradual pace and to a limited extent. In the meantime, the Bank of England cut its UK growth outlook for the next two years. Specifically, BoE economists project the national economy to expand 1.3% in 2019 and 2020, a downward revision from 1.5% and 1.6%, anticipated in May. However, growth is expected to rebound to 2.3% in 2021. Notably, the latest forecasts are based on an assumption that Brexit proceeds smoothly to some form of deal. The central bank expects CPI inflation to reach 2.2% in two years’ time and 2.4% in three years’ time.
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Initial US jobless claims rise marginally
Americans who applied for unemployment benefits for the first time grew by 8,000 to 215,000 last week, the US Department of Labor said in a report. Despite an increase the claims, however, remain record low, showing the labor market has strengthened. This is also confirmed by Fed Chair Jerome Powell’s earlier statements that the central bank expects job gains to slow down this year, although the growth rate will be enough to sustain steadily low unemployment. The four-week claims average, a less volatile reading, decreased from 213,250 to 211,500. Americans who are still paid unemployment benefits jumped by 22,000 to 1,699,000 for the week ending July 20.
Washington could hit China with new tariffs
President Donald Trump pledged to impose new tariffs on Chinese exports. “…during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country” Trump tweeted. He emphasized that the new tariffs will affect products and services that have not yet been tariffed, noting that the US has already imposed 25% tariffs on USD 250 bn of Chinese goods. At the same time, the US leader claimed that “We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a bright one!”. The US-China talks over the trade deal are expected to continue in Washington in early September.
US: Trump remark puts equities on edge
US stocks closed deep in the red on Thursday, August 1.
While equities headed quickly north during the first half of the session on the heels of the investor-friendly FOMC decision to make a 0.25% rate cut, sentiment changed abruptly during the second half, with stocks taking a hit. Sentiment was marred by President Donald Trump who voiced yesterday plans to introduce new tariffs on Chinese goods even though the US-China trade talks are in progress.
According to the US leader, Washington is set to impose a 10% tariff on USD 300 bn of Chinese goods on September 1. His statement came after a US delegation of high-ranking officials returned from China where a new round of negotiations was held.
On the data front, numbers were not overly favorable, with US construction spending dropping 1.3% in June vs. the median consensus of a 0.3% increase, and the ISM Manufacturing Index for July fell to 51.2 vs. a forecast rise to 52.
It should be noted that the volatility gauge, the VIX, jumped to nearly a two-month high after US sentiment changed yesterday.
The external news flow for US trading was mixed as European stocks gained, while bearish sentiment prevailed in Asia.
Recapping the indices, the blue-chip gauge Dow Jones Industrial Average dipped 1.05% to 26,583.42, the S&P 500 skidded 0.9% to 2,953.56 and the tech-focused Nasdaq Composite retreated 0.79% to 8,111.12.
In commodities, September NYMEX WTI spiked 7.9% to USD 53.95/bbl, whereas August COMEX gold dropped 0.4% to USD 1,420.90/oz.
In the blue-chip universe, only a few names closed in the green, with only IBM and Microsoft adding over 1%, while Goldman Sachs, Caterpillar, Nike, and Tesla pulled back over 3%.
On the minus side, microchip maker Qualcomm gave up 2.7% on disappointing guidance for the current quarter.
Among the outperformers, restaurant chain Yum Brands surged 3.9% as earnings and revenue came in better than Wall Street expected.
Industrial giant General Electric saw 3.5% shaved off its market cap next day after releasing its quarterly financial statement and announcing that its CFO will step down.
The daily chart shows that the index has moved down from the upper line of an emerging rising wedge, and the position of stochastic lines shows that the index could head further south in the short term.
Europe: FTSE 100 struggles to rebound
Key European stock indices turned in mostly positive performance on Thursday, August 1, on the back of several upbeat earnings reports as well as M&A news that outweighed hawkish signals from the Fed.
On the macro data front, the July manufacturing PMI for Germany stood at 43.2 vs. 43.1 projected, while the same indicators for the Eurozone and the UK came in at 46.5 and 48.0, respectively, compared to expectations of 46.4 and 47.7.
Notably, downbeat sentiment prevailed on UK markets after the Bank of England cut its growth outlook, citing Brexit-related uncertainty, as well as on the heels of losses in commodity names.
Recapping the benchmarks, the French CAC 40 firmed 0.70%, the UK’s FTSE 100 Index edged down 0.03%, while the German DAX added 0.53%. The regional indicator STXE 600 closed 0.50% higher at 387.68. Notably, the Swiss market was offline in observance of a national holiday.
Tobacco maker British American Tobacco soared 7.0% after reporting better-than-expected sales and announcing upbeat 2H earnings guidance.
The London Stock Exchange Group surged 6.5%, to an all-time high, on news that it sealed a deal to acquire analytical data provider Refinitiv Holdings for USD 27 bn, including debt.
European lenders Barclays, Standard Chartered and Societe Generale picked up 1.2%, 3.3% and 5.8%, respectively, on the back of stellar quarterly financial performance.
British oil major Royal Dutch Shell shed 1.5% after reporting a decline in net income, citing lower gas prices.
Key European stock indices have been trading sharply lower during the first half of Friday, August 2, following Donald Trump’s threat to impose an additional 10% tariff on Chinese imports. The session’s underperformers include names that are exposed to global trade relations such as automakers and mining companies.
As regards macro data, Switzerland’s CPI came in at -0.5% m-o-m and +0.3% y-o-y in July vs. expectations of -0.3% m-o-m and +0.5%, while the country’s manufacturing PMI came in at 44.7 compared to 46.5 projected.
By 8:39 GMT, the French CAC 40 fell 2.36%, the UK’s FTSE 100 retreated 1.91%, and the German DAX dropped 2.33%. The regional barometer STXE 600 was off 2.00% at 379.91.
The daily chart shows that the German DAX is trading close to the lower line of Bollinger bands, while the Slow Stochastic Oscillator is about to enter oversold territory. As a result, an upturn could be in the offing.
Asia: markets retreat on Trump narrative
Asian stock indices turned in mostly negative dynamics on Friday, August 2 after Donald Trump said that the US stands ready to impose a 10% tariffs on Chinese imports valued at USD 300 bn, which will be effective at least until the countries seal a trade deal.
As regards market-driving data, Australia’s 2Q PPI came in at 2%, while June retail sales rose 0.4% vs. 0.3% projected. In other news, minutes from the Bank of Japan’s latest meeting were published today, according to which most policymakers think that further monetary stimulus is appropriate for the time being.
The Japanese Nikkei 225 dipped 2.11%, the Chinese Shanghai Composite retreated 1.41%, Hong Kong’s Hang Seng fell 2.35%, the South Korean KOSPI eased 0.95%, and the Australian S&P/ASX 200 closed 0.30% lower.
On the S&P/ASX 200, Saracen Mineral Resources and Resolute Mining outperformed the broader market, soaring 10.86% and 10.71%, respectively. On the other side of the ledger, Fortescue Metals Group and Graincorp Limited tumbled 6.14% and 5.35%.
The Nikkei 225 gainers were led by Casio Computer and Toho, which surged 7.99% and 2.10%, respectively. Among the decliners, Furukawa Electric and Fujikura sank 12.0% and 9.9%.
The list of underperformers included Japanese exporters with Chinese exposure. In particular, Komatsu and Hitachi Construction Machinery retreated over 2.5%.
Japanese exporters came under pressure as the yen appreciated. Specifically, Toyota Motor, Subaru and Panasonic gave up over 1.7%.
Electronics maker Sharp slid over 9% after reporting worse-than-expected quarterly profit.
Japan’s Casio Computer spiked 9.5% after reporting a 13.9% uptick in quarterly operating profit.
In the Australian banking sector, Commonwealth Bank, Westpac, National Bank of Australia, and Australia & New Zealand Banking ended in the red.
Australian mining giant Rio Tinto gave up 2.95% amid retreating prices for several metals.
From a technical standpoint, the Hang Seng continues to extend a downtrend, heading towards the nearest horizontal support level at 26,840.
Oil prices have jumped substantially on Friday after falling sharply in the previous session. However, crude is set to close the week in the red. Since Monday, Brent has declined by 2.8%, while WTI is down 2.6%. On Thursday, news that Washington intends to impose new tariffs on Chinese goods was a shock for the oil market, triggering the sharpest decline over the past four years. Investors are concerned that this will prompt Beijing to retaliate and, as a consequence, will lead to further negative consequences for the global economy, subsequently undermining global oil demand. Over the past few sessions, an additional downside driver has been notable dollar appreciation against major currencies amid less dovish-thanexpected comments from Fed Chair Jerome Powell after the FOMC’s July meeting, whereas some support came from the EIA petroleum status report, showing a drawdown in inventories for the seventh week running.
Experts note that escalation in the US-China trade war confirms the market’s worst worries about oversupply. If the situation deteriorates, market participants could turn their eyes to OPEC+, expecting new output cuts.
Non-ferrous metals have dropped on the LME, whereas gold jumped to USD 1,450/oz.
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