Eurozone Composite PMI declines in July
The flash estimate of the IHS Markit Composite Eurozone PMI decreased to 51.5 in July from 52.2.a month earlier, representing the lowest reading in the last three months. The manufacturing PMI retreated to 46.4 from 47.6, while the services PMI slipped to 53.3 from 53.6. “The manufacturing sector has become an increasing cause for concern,” said Chris Williamson, an IHS Markit economist. “Geopolitical worries, Brexit, growing trade frictions and the deteriorating performance of the autos sector in particular has pushed manufacturing into a deeper downturn with the survey indicative of the goods-producing sector contracting at a quarterly rate of approximately 1%.” According to Williamson, “the more domestically-focused service sector remained the main driver of expansion, though even here the rate of growth has slowed, likely in part due to signs of weaker labor market trends. Hiring was close to a three-year low in July.” Furthermore, Germany’s Composite PMI decreased to 51.4 from 52.6 in June. Notably, the country’s manufacturing PMI fell to 43.1, an all-time low, from 45.0, while the services PMI dropped to 55.4 from 55.8. In France, the Composite PMI stood at 51.7, down from 52.7, with the manufacturing and services gauges decreasing to 52.2 and 50.0, respectively, from 52.9 and 51.9. “The eurozone economy relapsed in July, with the PMI giving up the gains seen in May and June to signal one of the weakest expansions seen over the past six years. The pace of GDP growth looks set to weaken from the 0.2% rate indicated for the second quarter closer to 0.1% in the third quarter,” Williamson said.
US new home sales grow less than forecast in June
New home sales in the US jumped 7% m-o-m to an annual rate of 646,000 in June, the Department of Commerce reported. Analysts on average forecast new home sales at 658,000. In June, the median new home price was USD 310,400, slightly down on the year. At the end of July, new homes on the US market amounted to 338,000, and given the pace of June sales it would take 6.3 months to sell them compared with 6.7 months in May. It should be noted that new homes account for roughly 10% of the US housing market but new home sales are registered shortly after sale contracts are signed, making them a more accurate indicator of market conditions.
South Korean GDP grows 1.1% in 2Q
South Korea’s GDP grew 1.1% q-o-q in the second quarter, or the highest growth rate since 3Q17, preliminary official data show. The South Korean economy expanded 2.1% y-o-y, up from 1.7% y-o-y in January-March. Economic growth accelerated mainly amid an increase in economy-supporting government spending in the conditions when exports, investment in construction and production facilities have not yet been restored. As forecast by the South Korean central bank, GDP will grow 2.2% and inflation will run at 0.7% this year. It should be noted that last week the regulator cut its key interest rate for the first time in three years in order to sustain economic growth. South Korean authorities are also set to expand budget stimulus measures, with a USD 6 bn additional spending program awaiting legislative approval.
US: equities close mixed
US equity benchmarks showed mixed performance on Wednesday, July 24. Specifically, the Dow slipped into the red, whereas the S&P 500 and the Nasdaq not only advanced but also reached all-time highs. Support came from hopes that trade talks with China will resume soon alongside positive expectations about the upcoming ECB and FOMC meetings. Furthermore, investors were upbeat about Texas Instruments’ encouraging forecast for the prospects of the semiconductor market. However, disappointing quarterly earnings reports from Boeing and Caterpillar dragged down the Dow.
On the data front, US new home sales increased from 604,000 in May to 646,000 in June vs. an expected rise to 660,000.
Recapping the indices, the blue-chip gauge Dow Jones Industrial Average dipped 0.29% to 27,269.97, the S&P 500 advanced 0.47% to 3,019.56, and the tech-focused Nasdaq Composite closed 0.85% higher at 8,321.50.
In commodities, September NYMEX WTI fell 89 cents to USD 55.88/bbl, whereas August COMEX gold increased USD 1.90 to USD 1,423.60/oz. Meanwhile, the 10-year US government bond yield ticked down 0.02% to 2.05%.
Among the notable advancers, shares of microchip maker Texas Instruments spiked 7.4% after announcing that a contraction in the global semiconductor market, on its estimate, will not be as long as expected.
Among the notable decliners, mining and construction machinery manufacturer Caterpillar pulled back 4.5% after reporting a drop in quarterly earnings due to weakening demand in Asia. 2Q EPS totaled USD 1.62 bn, or USD 2.83 per share, compared with USD 1.70 bn, or USD 2.82 per share in the yearearlier period, while analysts forecast EPS at USD 3.12 per share.
Airplane maker Boeing gave up 2.5% after reporting a net loss of USD 2.94 bn, or USD 5.21 per share, in the second quarter against profit of USD 2.20 bn, or USD 3.73 per share, a year ago.
In the blue-chip segment, the number of outperformers and underperformers was nearly the same, with the list of underperformers, in addition to Caterpillar and Boeing, including UnitedHealth (-1.5%), while Intel (+2.3%), Visa (+1.3%) and Goldman Sachs (+1.2%) stood out among the outperformers.
The daily chart shows that the S&P 500 is trading near the upper line of Bollinger Bands, while the Slow Stochastic Oscillator and the RSI are close to overbought territory. As a result, we expect the index to start falling in the short term.
Europe: markets trend broadly higher
Key European stock indices ended mixed on Wednesday, July 24, with positive sentiment prevailing as losses in commodity names were offset by gains in automotive stocks and microchip makers. Moreover, traders looked ahead to the ECB’s policy meeting scheduled for this afternoon. Furthermore, sectors that are sensitive to trade policy and tariff changes traded to the upside on reports that US negotiators led by Trade Representative Robert Lighthizer will travel to China shortly for a new round of import tariff talks.
Yesterday’s macro data was ambivalent as the Eurozone manufacturing PMI for July (preliminary) came in at 46.4, missing 47.6 expected, while the region’s services PMI for the same month (preliminary) stood at 53.3, in line with the median consensus.
Recapping the benchmarks, the UK’s FTSE 100 retreated 0.70%, the French CAC 40 eased 0.20%, while the German DAX firmed 0.30%, and Italy’s FTSE MIB rose 0.60%. The regional indicator Stoxx 600 closed 0.05% higher at 391.73.
European microchip makers were on the rise, following an upbeat earnings release from US industry player Texas Instruments. In particular, ASM International soared 6.5%, and Infineon Technologies added 2.3%.
German automaker Daimler gained 2.5% as it pledged to cut more costs after reporting a quarterly loss.
Deutsche Bank shed 1.3% after coming out with worse-than-expected quarterly earnings.
British sports car maker Aston Martin nosedived 25.9% after trimming full-year sales guidance.
Finnish industrial company Valmet sank 8% as investors were let down by its quarterly earnings.
Key European stock indices have been trading moderately higher during the first half of Thursday, July 25, as investors look ahead to the ECB’s policy meeting scheduled for this afternoon. Notably, markets expect the regulator to serve up a dovish narrative and hints about QE in the foreseeable future.
By 8:23 GMT, the UK’s FTSE 100 added 0.15%, the German DAX advanced 0.17%, and the French CAC 40 firmed 0.56%. The regional barometer STXE 600 was 0.29% higher at 392.87.
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Asia: benchmarks rise ahead of ECB meeting
Asian stock indices delivered positive performance on Thursday, July 25, as investors look ahead to the outcome of today’s ECB meeting. Notably, we expect the regulator to leave the main refinancing rate and the key deposit rate unchanged at 0.0% and -0.4%, respectively. However, a number of analysts project a rate cut at this meeting.
On the macro data front, Japan’s net foreign investment data came out, with the weekly outflow at JPY 110 bn compared to a JPY 93.1 bn outflow a week earlier. South Korea’s Q2 GDP (preliminary) came in at 1.1% q-o-q vs. 1.0% q-o-q expected. In y-o-y terms, the indicator stood at 2.1% vs. 2.0%.
The Japanese Nikkei 225 increased 0.22%, the Chinese Shanghai Composite firmed 0.48%, Hong Kong’s Hang Seng picked up 0.25%, the South Korean KOSPI slipped 0.38%, and the Australian S&P/ASX 200 closed 0.61% higher.
On the S&P/ASX 200, Ioof Holdings and Nufarm outperformed the broader market, spiking 7.18% and 6.03%, respectively. On the other side of the ledger, Iluka Resources and Fortescue Metals Group tumbled 7.01% and 5.49%.
The Nikkei 225 gainers were led by Advantest and CyberAgent, which shot up 20.23% and 11.49%. On the other side of the spectrum, Hitachi Construction Machinery and Canon slid 2.89% and 2.79%.
In the tech sector, Advantest bolted up 20.2% on better-than-expected quarterly earnings released earlier.
Semiconductor makers were well bid, with Sumco and Tokyo Electron adding over 2%.
Japanese telecom operator SoftBank Group gained 1.8% on news that it intends to invest some USD 40 bn in Vision Fund.
In the Australian banking sector, Commonwealth Bank, Westpac, National Bank of Australia and Australia & New Zealand Banking landed in positive territory.
Australian mining giant Rio Tinto traded sharply lower, ending 4.20% in the red on the back of declining prices for iron ore and several metals.
From a technical standpoint, a symmetrical triangle could be shaping up on the Hang Seng, with a breakout to the upside likely in the short term.
Oil has been trending higher on Thursday after falling sharply in the previous session amid signs of a slowdown in global economic growth. Data released on Thursday by research firm IHS Markit showed that industrial activity decreased in leading global economies. Specifically, the US manufacturing PMI declined to the lowest level since 2009, and Germany’s manufacturing PMI dropped to a seven-year low. Investors are concerned that this will further dampen global oil demand.
Market participants took in stride yesterday’s EIA petroleum status report, which showed a sharp drawdown in US inventories and production as they believe that the consequences of Hurricane Barry in the Gulf of Mexico impacted this read to a great extent. US crude stockpiles declined for the sixth consecutive week, down 10.84 mn bbl this time, while gasoline inventories decreased by 200,000 bbl, while distillates showed a 600,000 bbl build. US crude production fell 700,000 bpd to 11.3 mn bpd.
Non-ferrous metals are trading mostly lower on the LME, while gold is still locked within a narrow range of USD 1,420-1,430/oz.
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