Germany stands ready to deliver stimulus to counter next crisis
German finance minister Olaf Scholz suggested Berlin could raise up to EUR 50 bn of extra spending to boost economic growth. The estimate stems from the amount of Germany’s additional borrowings during the last crisis 10 years ago. Scholz said the global financial crisis in 2008/2009 had cost Germany roughly EUR 50 bn, adding: “And we have to be able to muster that (sum of money). And we can muster that.” “The biggest problem is uncertainty, including that caused by the Chinese-US trade war,” Scholz said. He made it clear that no urgent measures are required at this point. However, experts highlight various warning signals, both domestic and global, that point to the need for changes in the country’s fiscal policy. Such signals include a decrease in German Q2 GDP and a risk of further trade frictions with the US. To remind, Donald Trump has repeatedly threatened to impose a tariff on European-made cars imported to the US. Such a tariff would be a serious setback for the German automotive industry. Moreover, reports came out that the German government could ditch a balanced budget and allow a budget deficit if recession risks materialize. Effectively, Berlin would be prepared to take on new debt to cover tax revenues shortages in an economic downturn.
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Eurozone inflation slows to 1% y-o-y
Eurozone consumer prices rose 1% y-o-y in July, final Eurostat data show. This means that annual inflation in the Eurozone slowed from 1.3% in the past month and turned out to be the slowest since November 2016. Prices decreased 0.5% m-o-m. Consumer prices net of such volatile factors as energy, food and alcohol (the CPI Core which the ECB tracks) grew 0.9% y-o-y in July after rising 1.1% in June. The Eurozone’s food, alcohol and tobacco prices jumped 1.9% y-o-y in July, energy prices grew 0.5%, and services rose 1.2%. Annual inflation in 28 EU member states decelerated from 1.6% in June to 1.4% in July. On a monthly basis, EU prices fell 0.3%.
Trump calls on the Fed to cut the rate by 1%
President Donald Trump again complained about an overly strong dollar and said that the federal funds rate should be cut by at least one full percentage point. The fundamentals of the US economy are very strong, although Fed Chair Jerome Powell is very shortsighted but the Democrats have been trying to worsen economic conditions deliberately ahead of a 2020 election, very selfishly, Trump tweeted. According to him, the dollar is so strong that unfortunately it does harm to other countries. The Federal Reserve’s key rate should be cut by at least 100 basis points within quite a short time, perhaps in combination with some QE. If this occurs, the US economy will get stronger and the global economy will obtain fast and solid help. This is good for all, he thinks. Earlier, President Donald Trump has repeatedly criticized the Fed for its overly tough monetary policy, violating the generally accepted principle, according to which the US president should not comment on the central bank’s actions.
US: equities head resolutely north
Major US stock indices logged solid gains on Monday, August 19, on the back of optimism sparked by the aspiration of leading central banks to deliver stimulus. Specifically, the Chinese regulator said it plans to reduce the cost of borrowing for businesses, while the Bundesbank noted it stands ready to make injections to support the economy if necessary. Buying sentiment was also bolstered by Washington’s decision to extend Huawei’s trade license by 90 days.
In sectoral terms, all 11 S&P 500 industry groups landed in the green, with energy stocks topping the outperformers.
Recapping the indices, the Dow Jones Industrial Average advanced by 0.96% to 26,135.79, the S&P 500 added 1.21% to 2,923.65 and the Nasdaq Composite closed 1.35% higher at 8,002.81.
In commodities, September NYMEX WTI rose USD 1.34 to USD 56.21/bbl, while December COMEX gold decreased by USD 12.00 to USD 1,511.60/oz. Meanwhile, the 10-year US government bond yield ticked up 0.06% to 1.6%.
Stock indices got a boost from Apple (+1.9%) on news that CEO Tim Cook met with President Donald Trump and they talked about the adverse impact of trade tariffs on the tech giant’s business.
Among the outperformers, cosmetics manufacturer Estee Lauder spiked 12.5% on robust financials for fiscal 4Q, with adjusted EPS reaching 64 cents per share vs. the median consensus of 53 cents per share. 4Q sales jumped 9% y-o-y to USD 3.59 bn, exceeding analyst expectations of USD 3.53 bn.
The advancers also included food service provider Aramark, which spiked 8.3% on news that hedge fund Mantle Ridge L.P. disclosed information showing it acquired a stake in the company.
In the blue-chip segment, nearly all liquid names closed in the green, with the lead advancers including Cisco Systems (+3.3%), Dow (+2.5%) and Home Depot (+2.1%), while only UnitedHealth (-0.4%) and American Express (-0.2%) closed lower.
A bullish gap has taken shape on the S&P 500 daily chart after having rebounded from the lower line of Bollinger Bands. Given the position of the Slow Stochastic Oscillator and the RSI, we expect the index to extend gains in the short term.
Europe: indices move higher on positive sentiment
Key European stock indices landed in the green on Monday, August 19, drawing support from news that policymakers in China and Germany stand ready to deliver additional stimulus in an effort to boost growth.
Specifically, German finance minister Olaf Scholz said that the country could muster EUR 50 bn of extra spending in an economic crisis. Moreover, reports came out that the German government could abandon a balanced budget and allow a budget deficit if recession risks materialize. Meanwhile, China’s central bank announced a reform of its interest rate system intended to lower funding costs for the corporate sector and generate demand for new loans.
As regards macro data, the final reading of the Eurozone July CPI came in at -0.5% m-o-m and +1.0% y-o-y vs. expectations of -0.4% m-o-m and +1.1% y-o-y.
Recapping the benchmarks, the UK’s FTSE 100 advanced 1.02%, the French CAC 40 firmed 1.34%, and German DAX rose 1.32%. The regional barometer STXE 600 closed 1.14% higher at 373.86.
German lenders outperformed the broader market on expectations that local policymakers will move forward with stimulus. As a result, Deutsche Bank and Commerzbank surged 2.7% and 1.1%, respectively.
Other regional banking stocks followed suit. Specifically, BNP Paribas, Credit Agricole and UniCredit 0.46%, 0.50% and 1.71%, respectively.
British pub chain Greene King bolted up 51% on reports that Hong Kong’s CK Asset Holdings owned by Hong Kong tycoon Li Ka-shing sealed a deal to take over the company for GBP 2.7 bn (USD 3.28 bn).
Key European stock indices have been on the rise during the first half of Tuesday, August 20, drawing support from expectations that China and Germany will deliver additional stimulus in an effort to jump-start growth.
As regards macro data, Germany’s July PPI stood at +0.1% m-o-m and +1.1% y-o-y compared to 0.0% m-o-m and 1.0% y-o-y projected. In Switzerland, the trade surplus decreased to CHF 3,631 mn.
By 08:45 GMT, the UK’s FTSE 100 advanced 0.33%, the German DAX edged up 0.09%, and the French CAC 40 firmed 0.16%. The regional indicator STXE 600 was up 0.16% at 374.44.
The daily chart shows that the German DAX has broken through the upper line of a descending wedge, while the Slow Stochastic Oscillator is pointing north. As a result, the current uptrend will likely gain traction in the short term.
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Asia: Chinese and Hong Kong markets sink into the red
Asian stock indices turned in mostly positive dynamics on Tuesday, August 20, drawing support from expectations that major central banks will move ahead with additional stimulus to boost growth. Moreover, the People’s Bank of China cut the loan prime rate to 4.25% from 4.31% today.
No market-driving macro data came out today. However, minutes from the Reserve Bank of Australia’s latest meeting were published today, according to which the regulator will consider easing monetary policy further as and when needed. Notably, most policymakers expect the central bank to maintain low interest rates for a long time.
The Japanese Nikkei 225 added 0.55%, the Chinese Shanghai Composite slipped 0.11%, Hong Kong’s Hang Seng eased 0.23%, the South Korean KOSPI rose 1.16%, and the Australian S&P/ASX 200 closed 1.20% higher.
On the S&P/ASX 200, IPH and Beach Energy outperformed the broader market, soaring 10.75% and 9.0%, respectively. On the other side of the ledger, Eclipx Group and Saracen Mineral Holdings retreated 3.88% and 3.77%.
The Nikkei 225 gainers were led by Dainippon Screen and Chiyoda, which surged 5.18% and 4.36%, respectively. Among the decliners, FamilyMart and Tokyo Electric Power slid 3.95% and 2.93%.
Japanese Apple component suppliers enjoyed demand, with Taiyo Yuden and TDK gaining over 1%.
Tech stocks were well bid, with Tokyo Electron and Advantest adding over 1.2%.
In the Australian banking sector, Westpac and National Bank of Australia landed in positive territory, while Australia & New Zealand Banking and Commonwealth Bank closed slightly lower.
Australian mining giant Rio Tinto picked up over 0.85%, tracking iron ore prices.
Automakers Hyundai Motor and Kia gave up 1.56% and 1.26%.
Australian O&G company Beach Energy spiked 9% after lifting full-year 2019 earnings guidance.
The operator of store chain FamilyMart shed 3.95%, correcting lower after an earlier rally.
From a technical standpoint, the Hang Seng is consolidating slightly below the 26,500 mark. Notably, the corrective rebound will likely gain traction as the benchmark heads towards 27,000.
Oil prices have been relatively stable on Tuesday after rising sharply in the previous session. Support came from recent positive news about US-China trade relations. Investors are hopeful that the world’s two biggest economies will still manage to strike a trade deal, driving up global oil demand. Sentiment also improved in anticipation of stimulus on the part of leading central banks. Specifically, the People’s Bank of China announced new measures to boost lending. Moreover, Germany stands ready to stimulate its economy if necessary.
Over the next few sessions, market participants will be focused on US crude inventories. Analysts forecast crude stockpiles to decline by 1.9 mn bbl for the first time in three weeks. Meanwhile, gasoline and distillates could show a build of 69,000 bbl and 584,000 bbl, respectively.
Non-ferrous metals have been trading mostly lower on the LME, while gold continues to hover around USD 1,510/oz.
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