G20 international trade declines in Q2
G20 international merchandise trade, seasonally adjusted and denominated in current US dollars, contracted in Q2 2019, an OECD report said. G20 exports fell 1.9% q‑o-q to USD 3,635 bn, while imports decreased 0.9% q-o-q to USD 3,683 bn. To remind, exports rose marginally by 0.3%, while imports declined 1.1% in Q1 2018. In the 28 EU member countries, exports and imports contracted 1.7% and 2.3% respectively. Amid continuing Brexit uncertainty, the UK saw significant contractions in both exports (-7.1%) and imports (-12.6%). Exports fell 5.3% in China (to their lowest level since Q4 2017) and 1.1% in the US (their lowest level since Q1 2018). Imports rose marginally in both countries by 0.6% and 0.3%, respectively. US exports to, and imports from, China increased 2.7% and 0.2%, respectively in Q2 2019. Russia’s exports fell by 7.4%, despite higher crude oil prices, while imports contracted 2.5%. Saudi Arabia’s exports and imports also fell significantly, by 3.5% and 11.5%, respectively. In South Korea, exports decreased 1.6%, but imports rose 2.9%. In Argentina, imports contracted 6.4% as the Argentine peso depreciated 86.7% against the US dollar over the last four quarters, including 12.5% in Q2 2019. Turkey’s imports also fell significantly, by 6.4%, as the Turkish lira extended losses, depreciating 9.5% against the US dollar in Q2 2019. Only a few G20 economies saw merchandise trade exports increase in Q2 2019: Australia (by 6.3%), Canada (6.4%), Mexico (2.4%) and Japan (0.2%).
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US ISM Manufacturing Index hits 3-year low
The ISM Manufacturing Index in the US decreased from 51.2 in July to 49.1 in August. Meanwhile, the index dropped below 50, which separates growth and contraction in the sector, for the first time since August 2016. The ISM New Orders Index fell from 50.5 in July to 47.2. The Employment Index decreased from 51.7 to 47.4. Only 3 out of 18 industries reported more orders, four sectors raised output, and employment rose in six sectors. To remind, the manufacturing sector accounts for around 12% of the US economy.
ECB doubt about the necessity of QE resumption rises
Along with a number of his colleagues, Bank of Estonia Governor and ECB Governing Council member Madis Muller expressed doubt that it is necessary to resume government bond purchases to stimulate the Eurozone economy. He does not think that the European regulator has strong arguments to re-launch a QE program, he claimed. Muller went on to say that this is inadequate in the absence of deflation risks and he doubts that this action could be efficient. German, Danish and Austrian central bankers Jens Weidmann, Klaas Knot and Robert Holzmann, and ECB Executive Board member Sabine Lautenschlaeger expressed the same opinion earlier. Muller pointed out that the ECB has rate-cutting possibilities. Meanwhile, he warned that providing banks with exceptions with regard to the application of negative deposit rates will reduce the effect from monetary easing. The ECB will hold its next meeting on September 12. Some time ago, ECB head Mario Draghi pledged to put forward a broad stimulus package at the meeting.
US: equities open the week lower
Key US stock indices showed negative performance on Tuesday, September 3. Macro data came in worse than expected, exacerbating concerns about the negative impact of the trade war on the country’s economic growth. Furthermore, on Sunday Washington and Beijing launched new tariffs against each other. To remind, US markets were closed on Monday in observance of Labor Day.
On the data front, the ISM Manufacturing Index decreased in August to 49.1, or below 50 for the first time since 2016, vs. an expected drop from 51.2 to 51.1. Construction spending grew 0.1% m-o-m compared to a 0.3% m-o-m increase.
To recap, the Dow Jones Industrial Average shed 1.08% to 26,118.02, the S&P 500 retreated 0.69% to 2,906.27 and the technology barometer Nasdaq Composite settled 1.11% lower at 7,874.16.
In commodities, October NYMEX WTI decreased USD 1.16 to USD 53.94/oz, while December COMEX gold jumped by USD 26.50 to USD 1,555.90/oz. The yield on 10-year US government bond ticked down 0.04% to 1.47%.
Boeing shares declined by 2.6% on media reports that the airplane maker has faced difficulties with regulators that could lead to more delays in bringing the grounded 737 Max fleet back to operation.
Tech giant Apple gave up 1.5% after China launched tariffs on some of its products, specifically the Apple Watch.
Chip suppliers, which are sensitive to trade tensions, also lacked demand, with Intel, Advanced Micro Devices and Micron Technology losing 0.9%, 1.8% and 0.6%, respectively.
More than two thirds of liquid names landed in the red, with the underperformers, in addition to Boeing, including Goldman Sachs (-2.4%) and American Express (-2.3%), while the top advancers were Pfizer (+1.6%), Procter & Gamble (+0.9%) and Coca-Cola (+0.5%).
The daily chart shows that the S&P 500 continues to trade below the 2,954 resistance level, hovering near the upper bound of a rising triangle. In the absence of overbuying signals, the index could advance in the short term.
Europe: markets reverse lower
Key European indices landed in negative territory on Tuesday, September 3 amid Brexit-related political uncertainty. Notably, the political situation in the UK is becoming increasingly complicated as British Prime Minister Boris Johnson, the leader of the Conservative Party, lost a majority in the House of Commons. Yesterday, MP Phillip Lee defected from the Conservatives to the Liberal Democrats, effectively leaving the Tory government without a majority.
Earlier, Boris Johnson spoke out against another delay to the UK’s exit from the EU, pledging to call a snap general election on October 14, if parliament passes a bill that blocks a no-deal Brexit.
Exacerbating downbeat sentiment, the US and China have reportedly yet to agree on the terms and conditions for another round of trade negotiations.
Recapping the benchmarks, the UK’s FTSE 100 retreated 0.19%, the French CAC 40 slipped 0.49%, and the German DAX eased 0.36%. The regional indicator STXE 600 closed 0.23% lower at 379.81.
French telecom operator Iliad plunged 6.3% after reporting a decrease of 127,000 in the number of users in H1 2019.
Among the laggards, low-cost airline EasyJet shed 3.31% as equity analysts at Kepler Cheuvreux downgraded the stock to Sell from Hold.
The UK’s Restaurant Group sank 12.2% after reporting weak earnings. Specifically, the company posted a GBP 87.7 mn pre-tax loss for H1 2019 compared to a GBP 12.2 mn profit for the year-earlier period.
Telecom player SES gave up 3.5% after announcing that its CFO Andrew Browne will be stepping down.
Key European stock indices have been on the rise during the first half of Wednesday, September 4 on the back of encouraging macro data out of China and Germany, as well as news that Carrie Lam, Hong Kong’s chief executive, is prepared to withdraw the extradition bill that set off months of protests in the city. To remind, withdrawal of the bill, which would allow extradition to mainland China, has remained at the top of the list of protesters’ demands.
As regards macro data, China’s Caixin services PMI for August increased to 52.1, while the services PMIs for Germany and the Eurozone came in at 54.8 and 53.5 vs. expectations of 54.4 and 53.4, respectively.
By 09:03 GMT, the UK’s FTSE 100 advanced 0.76%, the German DAX firmed 1.29%, and the French CAC 40 rose 1.18%. The regional indicator STXE 600 was up 1.01% at 383.64.
On the daily chart, German DAX broke out of the upper line of Bollinger bands, whereas the Slow Stochastic Oscillator is in overbought territory. As a result, upside potential is limited in the short term.
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Asia: indices rise on Chinese macro
Asian stock indices turned in mostly positive performance on Wednesday, September 4 on the back of macro data out of China. Specifically, the Caixin services PMI for August came in at 52.1, up from 51.6 in the previous month, easing investor concerns about a potential economic recession.
In Australia, Q2 GDP increased 0.5% m-o-m and 1.4% y-o-y, in line with expectations. In South Korea, foreign exchange reserves stood at USD 401.48 bn in August vs. USD 403.11 bn a month earlier. In other news, BoJ’s Goshi Kataoka said today that the regulator needs to ease its monetary policy stance before long.
The Japanese Nikkei 225 added 0.12%, the Chinese Shanghai Composite firmed 0.93%, Hong Kong’s Hang Seng jumped 3.9%, the South Korean KOSPI advanced 0.94%, while the Australian S&P/ASX 200 closed 0.31% lower.
The S&P/ASX 200 standout advancers included Eclipx and Metcash, which surged 3.40% and 3.54%, respectively. Among the decliners, CRS and Emeco Holdings tumbled 7.43% and 5.34%.
The Nikkei 225 gainers were led by Kawasaki Kisen Kaisha and Kyowa Hakko Kirin, which picked up 4.04% and 3.57%, respectively. On the downside, Sony Financial and Tokuyama pulled back 4.0% and 2.93%.
Japanese automakers Nissan Motors and Mitsubishi Motors dropped 1.48% and 1.78% after reporting lower sales in South Korea.
Asia’s largest clothing retailer Fast Retailing gained 1.4% after reporting a 9.9% increase in LFL sales in August. In addition, Japanese Kakaku.com and Nintendo surged 2.5% amid expectations that they could be included in the Nikkei 225 Index.
Shares of Australian lenders Westpac, National Bank of Australia, Australia & New Zealand Banking and Commonwealth Bank closed in negative territory.
Other notable gainers included Australian mining giant Rio Tinto, which ended the day slightly higher.
Technically speaking, the Hang Seng broke out of a symmetrical triangle to the upside. The closest resistance level is 27,000.
Oil prices have been rising on Wednesday after falling sharply in the previous session amid an acrossthe-board deterioration in financial market sentiment. Negativity came from US macro data, according to which the ISM Manufacturing Index showed a contraction for the first time in three years. President Donald Trump exacerbated the situation by claiming that feet-dragging in the trade standoff could have serious consequences. According to him, if the trade deal is signed after his re-election in 2020, its terms will be much tougher than currently assumed. “And then, think what happens to China when I win. Deal would get MUCH TOUGHER! In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!” the US leader tweeted.
Over the next few sessions, traders will be watching US crude inventories. Analysts forecast stockpiles to decline by 2.6 mn bbl, a third straight weekly contraction. Meanwhile, gasoline inventories could show a build of 1.6 mn bbl, whereas distillates could rise by 484,000 bbl.
Non-ferrous metals are trending higher on the LME, while gold is trading within a narrow range of USD 1,530-1,550/oz.
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