Fed’s Rosengren sees no case for rate cut
Boston Fed President Eric Rosengren does not see a “clear and compelling case” for further rate cuts, given the current economic conditions and risks to the financial system. To remind, the US Federal Reserve predictably cut the Fed funds rate by 25 bps to 2.0-2.25%, easing interest rates for the first time since 2008. Policymakers made the decision by 8 out of 10 votes, with Rosengren and Kansas City Fed President Esther George dissenting. “With the unemployment rate near 50-year lows and inflation likely to rise toward the 2% target, and with financial stability concerns being somewhat elevated given near-record equity prices and corporate leverage, I do not see a clear and compelling case for additional monetary accommodation at this time,” Eric Rosengren said. The US central bank hopes that the rate cut will mitigate downside risks stemming from trade frictions and a global slowdown as well as help inflation to reach the 2% target. Most of those risks have not materialized yet in the US economy, which continues to grow at a healthy pace. In the meantime, Fed Chair Jerome Powell told a news conference after the FOMC’s July meeting that the regulator was not about to start a long series of rate cuts, highlighting that “overall financial stability vulnerabilities are moderate.”
Saudi Arabian oil shipments to China set a record
China imported a record 7.72 mn tons of crude from Saudi Arabia in June, the General Administration of Customs of China data show. Meanwhile, Russia retained its second place among China’s major oil suppliers in June after boosting shipments from 6.36 mn tons in May to 7.15 mn tons. Angola ranks third, with oil exports to China rising to 4.43 mn tons. These three countries have gained the most from tougher US sanctions against Iran, Bloomberg pointed out. Meanwhile, oil exports from Iraq, the fourth biggest crude supplier, declined from 4.5 mn tons in May to 3.55 mn tons in June. Despite the sanctions, China continued to buy Iran’s oil. Nevertheless, June crude purchases totaled just 855,600 tons, or 290,000 bpd, the lowest level since 2010.
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ISM Non-Manufacturing Index reaches 2016 low
The US ISM Non-Manufacturing Index decreased from 55.1 in June to 53.7 in July. This is the lowest reading since August 2016 but it remained above the 50 threshold between growth and contraction of business activity in the sector. The New Orders Index in the services sector fell from June’s 55.8 to 54.1 last month, while the Business Activity Index plunged from 58.2 to 53.1. Meanwhile, the Employment Index improved from 55 to 56.2. It should be noted that the ISM Non-Manufacturing is calculated on data provided by companies from 62 services segments which account for nearly 90% of US GDP.
US: equities hit by a selloff
US stocks declined sharply on Monday, August 5.
On Monday, US equities suffered the biggest daily losses for 2019. Trading floors were hit by a selloff as tensions in the US-China trade relations escalated and the yuan declined below its 10-year low against the dollar.
To remind, last week President Donald Trump voiced plans to impose an additional 10% tariff on USD 300 bn of Chinese exports starting September. This decision came like a bolt from the blue for market participants, and on Monday the US leader continued his tirade by accusing Beijing of exchange rate manipulations.
Yesterday’s macro added negativity. Despite expectations the US ISM Non-Manufacturing Index decreased from 55.1 to 53.7.
The external news flow for US trading was quite unfavorable as a selloff hit European and Asian stocks as well.
Recapping the indices, the blue-chip gauge Dow Jones Industrial Average declined 2.9% to 25,717.74, the S&P 500 skidded 2.98% to 2,844.74 and the tech-focused Nasdaq Composite gave up 3.47% to 7,726.04.
In commodities, September NYMEX WTI dropped 1.7% to USD 54.69/bbl, while December COMEX gold advanced 1.3% to USD 1,476.50/oz.
In the blue-chip segment, not a single stock landed in the black. The likes of Apple, IBM, Visa, Intel, and Cisco gave up over 3%.
With the US-China trade conflict escalating, Apple plunged 5.2%, while other technology giants also underperformed.
Among the top outperformers, major meat processing company Tyson Foods spiked 5.1% after releasing quarterly numbers that surpassed the median consensus.
On the minus side, upscale cinema chain operator iPic Entertainment crashed 54.5% on news about its upcoming bankruptcy.
The daily chart shows that the index broke out of a wide falling wedge yesterday, so the benchmark is likely to correct further lower in the short term.
Europe: benchmarks extend losses
Key European stock indices showed negative performance on Monday, August 5, with technology and mining names topping the decliners. Markets remained under pressure from escalation of the US-China trade conflict in the aftermath of the 12th round of negotiations, at which the countries made no headway.
Moreover, the media reported yesterday that Chinese authorities had US agricultural imports suspended in response to the White House’s decision to impose a 10% tariff on an additional list of Chinese imports valued at USD 300 bn. Furthermore, China is reportedly considering raising tariffs on US agricultural deliveries contracted after August 3.
Incoming macro data also weighed on sentiment. Germany’s services PMI came in at 54.5 in July vs. 55.4 projected, while the same indicator for the Eurozone stood at 53.2 compared to the 53.3 consensus forecast, flat m-o-m. The Eurozone Sentix Investor Confidence Index for August clocked in at -13.7 vs. -8.3 expected after -5.8 a month earlier.
Recapping the benchmarks, the UK’s FTSE 100 retreated 2.47%, the French CAC 40 slid 2.19%, and the German DAX dropped 1.80%. The regional indicator STXE 600 closed 2.31% lower at 369.43.
As noted above, technology and mining stocks underperformed the broader market. In particular, SAP, STMicroelectronics and Infineon Technologies pulled back 2.9%, 4.3% and 3.3%, while BHP, Rio Tinto, Anglo American and Glencore shed 2.15%, 2.2%, 3.4% and 2.99%, respectively.
British lender HSBC Holdings dipped 2.4% on reports that its CEO John Flint will step down after only 1.5 years in office. Notably, the bank reported a rise on pre-tax profit, for the first time in the last six months, by 15.9% y-o-y to USD 12.41 bn compared to USD 10.71 bn in the year-earlier period.
Key European stock indices have been on the rise during the first half of Tuesday, August 6, correcting higher after a two-day sell-off. Notably, markets are drawing support from macro data out of Germany, where factory orders increased 2.5% in June, the biggest gain since August 2017, beating 0.5% expected by a wide margin.
By 9:00 GMT, the UK’s FTSE 100 ticked up 0.01%, the German DAX added 0.50%, and the French CAC 40 advanced 0.72%. The regional barometer STXE 600 was up 0.40% at 370.90.
The daily chart shows that the German DAX has repeatedly broken through the lower line of Bollinger bands, while the Slow Stochastic Oscillator is hovering in oversold territory. As a result, a corrective upturn could be in the offing.
Asia: US-China trade war weighs on markets
Asian stock indices turned in predominantly negative performance on Tuesday, August 6, specifically on the heels of an earlier sell-off in US equities as markets remain under pressure from escalation of the USChina import tariff dispute.
As for market-driving macro data, New Zealand’s Q2 unemployment rate came in at 3.9% vs. 4.3% expected. In Japan, overtime pay decreased 0.2% y-o-y in June. Australia’s trade surplus amounted to AUD 8.036 bn in June, while analysts, on average, expected AUD 6.0 bn.
In other news, the Reserve Bank of Australia held a policy meeting, at which the Board predictably decided to keep the key rate on hold at 1.0%.
The Japanese Nikkei 225 dipped 0.65%, the Chinese Shanghai Composite fell 1.56%, Hong Kong’s Hang Seng retreated 0.67%, the South Korean KOSPI slipped 1.56%, and the Australian S&P/ASX 200 closed 2.44% lower.
The S&P/ASX 200 standout advancers included Pinnacle Investment Management and Lynas, which soared 10.33% and 7.87%, respectively. On the other side of the spectrum, NRW Holdings and Wisetech Global Limited tumbled 6.81% and 8.02%.
The Nikkei 225 gainers were led by Subaru and Japan Steel Works, which spiked 8.09% and 6.87%, respectively. Among the decliners, Maruha Nichiro and Yahoo Japan sank 7.46% and 6.42%.
In Japan, stocks with exposure to global markets came under pressure, with Toyota Motor and Honda Motor retreating over 2.1%. Panasonic and Softbank Group shed over 2.8%.
Automaker Suzuki Motor gave up 3% after releasing worse-than-expected quarterly earnings.
Maruha Nichiro dropped 7.46% after reporting a decline in quarterly profit. Suntory Beverage & Food surged 4.5% as quarterly profit beat expectations.
In the Australian banking sector, Commonwealth Bank, Westpac, National Bank of Australia, and Australia & New Zealand Banking ended in the red.
Oil prices have corrected higher on Tuesday after taking a pounding yesterday amid worries that the USChina trade conflict will not be settled in the near future and this will dampen global crude demand. Over the weekend, President Donald Trump said that the US could introduce new tariffs on Chinese goods if there is no headway in the trade talks. After this, the People’s Bank of China (PBOC) set the yuan’s exchange rate at a 12-month low, while in Shanghai the yuan declined to the 2008 low. This sparked rumors that Beijing is ready to weaken the yuan in order to offset an adverse effect from the US tariffs. Trump directly accused Beijing of having executed exchange rate manipulations, driving up investor worries. It should be noted that today the yuan’s PBOC-set exchange rate turned out to be higher than analysts expected. This eased market tension somewhat because this may signal the Chinese regulator wants to soften yuan depreciation.
However, risks associated with the escalation of the US-China trade war are still high and many experts are quite pessimistic about oil market prospects. VM Markets managing partner Stephen Innes thinks that if in response to US actions China decides to shrug off US sanctions imposed on Iran and to start buying Iranian oil in the previous amounts, crude prices could drop by USD 15-20/bbl.
Non-ferrous metals are moderately higher on the LME, while gold has stabilized slightly above USD 1,470/oz after rallying in the previous sessions.
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