US personal income and spending increase in June
Americans saw their income rising 0.4% m-o-m in June, the US Department of Commerce reported. At the same time, personal spending grew 0.3%. Both indicators matched analyst projections. In line with the revised data, in May US personal income was up 0.4% and personal spending rose 0.5%. The PCE Core, which the Federal Reserve takes into account when assessing inflation risks, increased 0.2% m-o-m and 1.6% y-o-y in June. Real disposable income jumped 0.3% in June, or the highest pace since February, after rising 0.2% in the previous month. Inflation-adjusted wages and taxes increased by 0.5% on the month after a 0.2% rise in May. The US savings rate stood at 8.1% in June, up from 8% in May.
China’s manufacturing PMI rises in July
According to the data from the National Bureau of Statistics of China (NBS), the manufacturing PMI improved from 49.4 in June to 49.7 in July. However, the index has been below the 50 threshold, which separates growth and contraction in the sector’s business activity, for three months already. The New Orders Index rose from 49.6 in June to 49.8 this month, while the Employment Index increased from 46.9 to 47.1, while the country’s export sales index ticked up from 46.3 to 46.9. The PMI of large-sized enterprises jumped from 49.9 to 50.7 in July, whereas the index of mid-sized businesses decreased from 49.1 to 48.7, and the index of small entities fell from 48.3 to 48.2. Meanwhile, China’s official PMI in the services and construction sectors dropped from 54.2 in the previous month to 53.7. China’s NBS consolidated business activity index rose from 53 to 53.1.
US consumer confidence hits 8-month high
The Conference Board Consumer Confidence Index rose from 124.3 in June to 135.7 in July, representing the highest reading since November 2018 and beating the consensus forecast of 126 by a wide margin. The Present Situation Index increased from 164.3 last month to 170.9, while the Expectations Index soared from 97.6 to 112.2. The percentage of US consumers expecting business conditions to improve over the next six months rose from 19.1% to 24.0%, while those expecting payrolls to expand over the same period increased from 17.5% to 20.5%. The percentage of US consumers expecting their incomes to rise stood at 24.7%, up from 20.5% a month earlier. The percentage of those planning to buy a home reached 7.3%, the highest reading since 2017, compared to 6.2% in June. Meanwhile, the S&P CoreLogic Case-Shiller 20-City Composite Home Price Index rose at an annual rate of 2.4% (the weakest gain since 20120), following a 2.5% uptick in the previous month. Consequently, home prices have been in decline for 14 months in a row.
US: investors await FOMC meeting results
US stocks drifted lower on Tuesday, July 30, as investors await the outcome of the Federal Reserve’s twoday meeting. We expect the regulator to cut the federal funds rate by 0.25%.
As regards yesterday’s macro data, personal income and personal spending for June came out, with the former rising 0.4% and the latter increasing 0.3%. Both gauges matched expectations.
In addition, the July Consumer Confidence Index came in at 135.7, while analysts forecast 125. Meanwhile, the June reading was revised upward from 121.5 to 124.3.
Recapping the benchmarks, the Dow Jones Industrial Average inched down 0.09% to 27,198.02, the S&P 500 fell 0.26% to 3,013.18 and the Nasdaq slipped 0.24% to 8,273.61.
In commodities, September NYMEX WTI added USD 1.18 to USD 58.05/bbl, while August COMEX gold grew to USD 1,429.70/oz. The 10-year US government bond yield clocked in at 2.054%.
In the blue-chip universe, liquid names showed mixed performance, with the advancers including Procter & Gamble, Merck and Boeing, while Pfizer, Intel, and Verizon Communications stood out among the underperformers.
In corporate developments, payment system operator Mastercard gave up 1.17% after releasing secondquarter financial results. To remind, adjusted EPS reached USD 1.89 vs. USD 1.83 forecast.
Also among the decliners, biotechnology company Celgene eased 0.41%, even though financial results beat analyst projections. Adjusted net income amounted to USD 2.86, while analysts forecast USD 2.63.
Hygiene products company Procter & Gamble surged 3.8% after releasing second-quarter financials that surpassed the median consensus.
Drug maker Eli Lilly & Co. ticked down 0.03%, though it raised FY financial guidance.
Apple closed 0.43% lower due to the publication of its 2Q financials after hours. Earnings came in better than expected, while revenue from iPhone sales and services missed expectations.
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The daily chart shows that the S&P 500 continues to trade within a rising wedge, with a breakout to the downside expected. Stochastic lines are on the sell side and have already reached overbought territory, so we anticipate a breakout to the downside.
Europe: Trump narrative drags down benchmarks
Key European indices landed in negative territory on Tuesday, July 30, as concerns re-ignited that the US and China may fail to resolve the trade conflict any time soon. Hopes for a constructive resolution faded after Donald Trump blamed China for foot-dragging on trade talks ahead of the US presidential election 2020. He pointed out that, if re-elected president, he will take an even tougher stance.
Moreover, downbeat sentiment was stoked by weak earnings from several companies, including Lufthansa and Reckitt Benckiser, as well as patchy macro data.
Notably, Germany’s GfK Consumer Confidence Index for July decreased to 9.8 vs. 9.7 a month earlier, in line while Switzerland’s KOF Leading Indicators Index for the same month reached 97.1, beating 93.0 expected. The Eurozone Business Climate Index for July slid to -0.12, while analysts, on average, projected 0.08, following 0.17 in June. In Germany, the CPI (preliminary) came in at 0.5% m-o-m and 1.7% y-o-y, outpacing expectations of 0.3% m-o-m and 1.5% y-o-y.
Recapping the benchmarks, the UK’s FTSE 100 slipped 0.52%, the French CAC 40 pulled back 1.61%, and the German DAX fell 2.18%. The regional indicator STXE 600 closed 1.47% lower at 385.11.
In Germany, airline operator Deutsche Lufthansa plunged 5.92% after reporting a decline in Q2 net income.
Chemical and pharmaceutical major Bayer shed 3.7% after saying it finds increasingly difficult to meet fullyear financial targets.
The list of laggards included the UK’s Reckitt Benckiser which gave up 3.22% after reporting worse-thanexpected sales.
Oil company BP outperformed the broader market, surging 3.1% after reporting an increase in quarterly net income.
Key European stock indices have been trading range-bound during the first half of Wednesday, July 31, ahead of the outcome of the FOMC’s two-day meeting, with the interest rate decision to be announced tonight. The median consensus calls for a Fed funds rate cut to a range of 2.0-2.25%. Moreover, investors are focused on a new batch of corporate earnings as well as macro data.
Notably, German and Eurozone retail sales and unemployment data as well as flash estimates for the Eurozone CPI and GDP are due out today.
By 9:12 GMT, the UK’s FTSE 100 eased 0.39%, the German DAX firmed 0.24%, and the French CAC 40 ticked up 0.05%. The regional barometer STXE 600 was 0.03% lower at 384.98.
The daily chart shows that the German DAX is trading close to the lower line of Bollinger bands after having broken through it, while the Slow Stochastic Oscillator has approached oversold territory. As a result, the benchmark holds limited downside in the short term.
Asia: equities retreat after trade talks break down
Key Asian stock indices turned in mostly negative performance on Tuesday, July 31 as the new round of the US-China trade negotiations failed to secure any breakthroughs. Moreover, market participants await the outcome of the Fed’s two-day meeting, with the interest rate decision to be announced tonight.
Key macro data included China’s NBS manufacturing PMI, which came in at 49.7 in July vs. 49.4 in the previous month, while analysts, on average, projected 49.6. In Japan, the Consumer Confidence Index for July stood at 37.8 vs. 38.7 a month earlier.
Singapore’s Q2 Business Confidence Index clocked in at -11, down from -1 in June. In South Korea, the manufacturing output picked up 0.2% m-o-m in June vs. -0.2% m-o-m projected. In y-o-y terms, the indicator slipped 2.9%, while analysts, on average, expected -1.5%. Australia’s Q2 CPI stood at 0.6% mo-m compared to the 0.5% m-o-m median consensus, while, in y-o-y terms, the indicator rose 1.6% vs. the 1.5% consensus forecast.
The Japanese Nikkei 225 dipped 0.86%, the Chinese Shanghai Composite retreated 0.67%, Hong Kong’s Hang Seng fell 1.31%, the South Korean KOSPI eased 0.42%, and the Australian S&P/ASX 200 closed 0.47% lower.
On the S&P/ASX 200, IPH Limited Group and St Barbara outperformed the broader market, spiking 4.62% and 3.93%, respectively. Among the session’s worst performers, Adelaide Brighton and CYBG tanked 18.05% and 13.41%.
The Nikkei 225 gainers were led by Daiichi Sankyo and Nippon Express, which soared 6.45% and 6.02%, respectively. On the downside, Chiyoda and Konica Minolta sank 16.24% and 11.39%.
Game console maker Nintendo shed 3.4% after reporting a 10% decline in quarterly operating profit, which also missed projections.
Sumitomo Mitsui Trust Holdings and Sumitomo Mitsui Financial came under pressure after reporting worse-than-expected quarterly earnings.
Japan’s Konica Minolta tumbled 11% after posting a quarterly loss.
Conversely, Sony rose 5% after showing positive operating profit for the quarter.
In the Australian banking sector, Westpac, Commonwealth Bank, National Bank of Australia and Australia & New Zealand Banking ended in the red.
Australian mining giant Rio Tinto ticked up 0.07% on the back of strong metal prices.
From a technical standpoint, the Hang Seng continues the downtrend as it closes a bullish gap in the vicinity of 27,584.
Crude has extended its ascent on Wednesday after last night’s report which unveiled a further drawdown in US oil inventories. In line with the API data, stockpiles declined by 6 mn bbl, while analysts on average projected just a 2.8 mn bbl decrease. Gasoline and distillates dropped by 3.1 mn bbl and 890,000 bbl, respectively. The EIA petroleum status report is due out at 14:30 GMT today. If the API numbers are confirmed, this will be a seventh straight weekly contraction.
We note that investors await the outcome of the FOMC meeting at which the regulator is expected to cut the federal funds rate for the first time in a decade, and the news flow from the US-China trade talks that started earlier in Shanghai. According to Bloomberg, the negotiations ended earlier than planned. No official statements have so far been made after the meeting but the parties are likely to issue a joint statement later today.
Non-ferrous metals have traded sideways amid thin volumes on the LME, while gold has again surpassed USD 1,440/oz.
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