Beige Book: US economy remains on upward track
The US economy expanded at a modest pace through the end of August, the same as earlier this year, the US Federal Reserve’s Beige Book, a survey of economic activity across Districts, said. “Although concerns regarding tariffs and trade policy uncertainty continued, the majority of businesses remained optimistic about the near-term outlook,” the report said. Reports on consumer spending were mixed for most Districts, auto sales grew at a modest pace, while tourism activity remained solid. However, the manufacturing and agricultural sectors were weak spots last month. “Overall manufacturing activity was down slightly from the previous report. Among reporting Districts, agricultural conditions remained weak as a result of unfavorable weather conditions, low commodity prices, and trade-related uncertainties,” the report said. Data on activity in the nonfinancial services sector was positive, with reporting Districts noting similar or improved activity from the last report. Employment as well as wages expanded at a modest pace, on par with the previous reporting period. Districts indicated modest price increases since the last report. Retailers and manufacturers in some Districts reported slight increases in input costs. Reports on the impact of tariffs on pricing were mixed, with some Districts anticipating that the effects would not be felt for a few months.
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Eurozone retail sales drop in July
Eurozone retail sales decreased by 0.6% m-o-m in July, or the biggest monthly decline since December 2018, Eurostat reported. On an annualized basis, retail sales jumped 2.2%. Food, beverage and tobacco sales in the Eurozone fell 0.3% compared to June. Clothing and footwear sales declined 3.2%, consumer electronics and furniture sales dropped 1%, and medicine sales fell 1% as well. Computer and book sales ticked up 0.1%, while gasoline sales remained unchanged. Online stores reported a 1.5% decline in sales. In Germany, July retail sales fell 2.2% m-o-m after rising 3% in June, whereas French retail sales remained the same after rising 0.4%. Spain’s retail sales were flat after a 0.2% increase in the previous month.
US trade deficit drops in July
The US foreign trade deficit decreased by 2.7% m-o-m to USD 54 bn in July, Department of Commerce data show. Exports jumped 0.6% to USD 207.4 bn, with gains recorded in shipments of pharmaceuticals, new vehicles, crude oil, drilling equipment and soy beans. Goods and services imports to the US edged down 0.1% to USD 261.4 bn, with a sharp decline registered in the purchase of computers and oil, which offset higher imports of petroleum products and mobile phones. The US-China trade deficit fell from USD 30.2 bn in June to USD 29.6 bn in July. At the same time, the trade deficit with the EU reached a record USD 20.1 bn. During the first seven months of 2019, the US trade deficit amounted to USD 373.8 bn, up from USD 345.6 bn in the year-earlier period.
US: bulls gain the upper hand
Key US stock benchmarks closed in the green on Wednesday, September 4. The market drew support from Hong Kong’s news. Chief Executive of Hong Kong Carrie Lam said that the controversial extradition bill, which sparked multi-month protests in the country, will be withdrawn. Some optimism came from expectations that the UK will be able to sidestep a no-deal Brexit. British lawmakers decided to consider a bill prohibiting the government to conduct Brexit without reaching a preliminary agreement with the EU.
As regards macro, the US trade deficit totaled USD 54 bn in July, while analysts forecast USD 53.5 bn after USD 55.5 bn (revised) a month earlier. At the same time, the New York Business Activity Index improved from 878.8 in July to 879 in August.
Recapping the indices, the blue-chip gauge Dow Jones Industrial Average advanced 0.91% to 26,355.47, the S&P 500 added 1.08% to 2,937.78, and the technology index Nasdaq jumped 1.3% to 7,976.88.
In commodities, October NYMEX WTI climbed 4.3% to USD 56.26/bbl, while December COMEX gold traded up 0.3% to USD 1,560.40/oz. The 10-year US government bond yield stood at 1.46%.
Among the decliners, coffee house chain operator Starbucks gave up 0.68% after cutting earnings guidance for fiscal 2020. The company expects profit growth to slow as the positive effect from the tax reform on financial results, which was observed last fiscal year, fades.
Other underperformers included youth apparel retailer American Eagle Outfitters (-11.62%). Notably, adjusted EPS for the past quarter exceeded expectations, although guidance for the current reporting period disappointed investors.
The top advancers, included art supplies retailer Michaels Cos, which soared 11.8% on higher-thanforecast quarterly earnings. EPS, net of some items, stood at 19 cents per share, or above the median consensus (14 cents per share).
Truck maker Navistar International outperformed (+13.4%) as quarterly earnings substantially beat the Street’s average expectations. Net income in fiscal 3Q ending July 31 totaled USD 156 mn, or USD 1.56 per share, while analysts projected USD 1.18 per share.
The daily chart shows that the S&P 500 is trading slightly below the 2,940 resistance level. In case of a breakthrough, the index could extend gains.
Europe: political developments spark upbeat sentiment
Key European stock indices delivered positive dynamics on Wednesday, September 4, as political parties in Italy sealed a new coalition agreement, eliminating the risk of a snap 5Y4 election. Adding to upbeat sentiment, Hong Kong chief executive Carrie Lam withdrew the extradition bill, which has been at the top of the list of protesters’ demands.
Moreover, the UK’s House of Commons passed a bill that obliges British Prime Minister Boris Johnson to delay Brexit until January 31, 2020, unless the government signs a trade agreement with the EU. However, the bill has yet to pass the House of Lords to become law.
As regards macro data, the August services PMIs for Germany and the Eurozone stood at 54.8 and 53.5, respectively, while analysts, on average, projected 54.4 and 53.4.
Recapping the benchmarks, the French CAC 40 firmed 1.21%, the UK’s FTSE 100 Index added 0.59%, and the German DAX advanced 0.96%. The regional indicator STXE 600 closed 0.89% higher at 383.18.
The list of outperformers included British financial services names that are heavily exposed to the Hong Kong market. In particular, HSBC and Prudential picked up 1.8% and 3.6%, respectively.
French military electronics maker Thales surged 5.4% after reporting that H1 earnings before interest and tax increased 8% y-o-y to EUR 820 mn (USD 913.8 mn), while sales rose 9.9% y-o-y to EUR 8.2 bn thanks to the recent takeover of Gemalto.
European bourses showed mixed dynamics with a positive trend prevailing during the first half of trading on Thursday, September 5. The markets drew support from an announcement by China’s foreign trade ministry to the effect that authorities reached an agreement to resume trade talks with Washington in early
October. Meanwhile, UK trading floors experienced a sell-off mainly due to the fact that the shares of a number of companies went ex-dividend.
As regards macro data, Switzerland’s Q219 GDP gained 0.3% q-o-q and 0.2% y-o-y. In addition, Germany’s industrial orders in July decreased by 2.7% m-o-m vs. the median consensus that called for a 1.5% m-o-m decline. By 9:28 GMT, the French CAC 40 was up 0.80%, the UK’s FTSE 100 was off 0.35%, the German DAX was 0.83% higher, and the regional indicator STXE 600 was trading up 0.46% at 384.96.
On the daily chart, the German DAX is trading near the upper line of Bollinger bands, whereas the Slow Stochastic Oscillator is hovering in overbought territory. As a result, a downturn could be in the offing.
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Asia: US-China talks take markets higher
Asian stock indices turned in mostly positive performance on Thursday, September 5 on news that the US and China stand ready for a new round of trade talks early next month. Moreover, investors digested the de-escalation of political protests in Hong Kong.
On the macro data front, Japan’s net foreign investment came out, with the weekly outflow at JPY 89.5 bn compared to a JPY 3.9 bn inflow a week earlier. In Australia, the trade surplus amounted to AUD 7.27 bn in July, while analysts, on average, expected AUD 7.4 bn.
The Japanese Nikkei 225 rose 2.12%, the Chinese Shanghai Composite increased 0.96%, Hong Kong’s Hang Seng edged down 0.03%, the South Korean KOSPI advanced 0.79%, and the Australian S&P/ASX 200 closed 0.92% higher.
The S&P/ASX 200 standout advancers included Emeco Holdings and Nanosonics, which spiked 8.06% and 7.23%, respectively. Among the decliners, CYBG and Whitegaven Coal sank 19.47% and 9.35%.
The Nikkei 225 gainers were led by Toho Zinc and Japan Steel Works, which soared 8.76% and 7.04%, respectively. Tokyo Dome and CyberAgent were among the session’s worst performers, plummeting 8.12% and 3.56%.
Medical services provider M3 spiked 11.4%, while the operator of the baseball stadium Tokyo Dome fell 8.12% on reports that M3’s share in the Nikkei 225 Index will increase from October 1, whereas Tokyo Dome’s share will be cut.
Japan’s Kakaku.com and Nintendo retreated over 1.5% as the stocks were not included in the Nikkei 225.
Japanese heavyweights SoftBank and Fast Retailing picked up 2.04% and 2.15%, respectively.
Apple component suppliers were well bid, with AAC and Sunny Optical surging 4.3% and 3.7%.
In the Australian banking sector, Westpac, National Bank of Australia, Australia & New Zealand Banking and Commonwealth Bank ended in the green.
Australia’s mining giant Rio Tinto closed 2.14% higher.
From a technical standpoint, the Hang Seng earlier broken out of a symmetrical triangle to the upside, with the key resistance level remaining at 27,000.
Oil has been trending lower on Thursday after rallying in the previous session. A positive factor for the oil market on Wednesday was news that Beijing and Washington have finally agreed to resume trade negotiations in October, making market participants hopeful that trade tensions between the world’s two biggest economies will ease, although their opinions about key issues still differ widely. Additional support came from the White House’s decision to impose new sanctions against Iran, and a statement by Russian energy minister Alexander Novak that in September Russian oil producers will cut output to the level required under the OPEC+ deal.
According to yesterday’s API report, crude inventories showed a 400,000 bbl build last week, while analysts on average forecast a 2.6 mn bbl drawdown. Gasoline and distillates contracted by 877,000 bbl and 1.2 mn bbl, respectively. The EIA petroleum status report is due out at 14:30 GMT today.
Non-ferrous metals have been trading sideways on the LME, while gold continues to hover around USD 1,550/oz.
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