Rosengren: US economy needs no rate cut
Boston Fed President Eric Rosengren said that the US economy remains “relatively strong” to avoid the need for an interest rate cut. “This is a particularly good time to carefully watch incoming data – to determine whether any additional policy adjustments are necessary to achieve the Fed’s congressionally mandated goals of maximum employment and stable prices,” Rosengren said. In his view, downside risks to global growth are clearly heightened at this point, but have yet to materialize – at least, for the US economy, leaving no rationale for further monetary easing. In late July, the Fed’s Eric Rosengren and Esther George voted to leave the federal funds rate unchanged, against a majority at the FOMC, but the Committee, by 8 votes out of 10, still decided to cut the rate by 25 bps to 2.0-2.25% in the first cut since 2008. The FOMC’s next meeting is scheduled for September 17-18. The consensus forecast calls for another 25 bps cut to 1.75-2.0%, while some market participants expect a more aggressive cut by 50 bps.
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Swiss GDP growth slows to 0.3% Switzerland’s GDP grew 0.3%
q-o-q in the second quarter, the country’s State Secretariat for Economic Affairs (SECO) reported. The pace of GDP decelerated from 0.4% in January-March amid decreasing investment in the aftermath of the Trump-China trade war and weaker macro data in neighboring Germany. The Swiss economy expanded 0.2% y-o-y after rising 1% in the previous quarter. Swiss consumer spending rose 0.3% q-o-q in April-June, while government spending ticked up 0.1%. Investment in construction and equipment edged down 0.1% and 1%, respectively. 2Q exports jumped 0.3% compared with a 1% increase a quarter earlier, while service exports fell 0.2% after rising 1.7%. Output in the Swiss manufacturing sector grew by 1.3% and increase 1.4% in 1Q.
US ISM Non-Manufacturing Index up in August
The ISM Non-Manufacturing Index increased from 53.7 in July to 56.4 in August, while analysts on average expected a smaller decrease, only to 54. Notably, the ISM Non-Manufacturing Index, unlike the ISM Manufacturing Index, remains substantially above 50. This is a sign that the US services sector still looks strong despite an increase in various domestic and external risks. The New Orders Index for the US services sector improved from 54.1 in July to 60.3 last month, while the Business Activity Index jumped from 53.1 to 61.5. Meanwhile, the Employment Index dropped from 56.2 to a March 2017 low of 53.1. The Institute for Supply Management calculates the ISM Non-Manufacturing Index based on data provided by companies operating in 62 services segments that account for nearly 90% of US GDP.
US: equities gain on hopes for trade talks, strong macro
US equities logged gains on Thursday, September 5, after the media wired that Washington and Beijing will resume tariff talks in early October. In addition, investors are waiting for the US jobs report on Friday.
As regards macro data, initial US jobless claims amounted to 217,000 last week vs. 215,000 forecast. Moreover, the ADP National Employment Report showed that private businesses added 195,000 to their payrolls in August after a 142,000 increase in July.
July factory orders and the ISM Non-Manufacturing Index for August came out, with the former rising 1.4% vs. a 1% forecast, while the latter came in at 56.4% compared with 54 expected.
Moreover, the EIA petroleum status report showed a 4.77 mn bbl drawdown after a 10.02 mn bbl slide a week earlier, while analysts projected a 2.48 mn bbl contraction.
Recapping the indices, the blue-chip gauge Dow Jones Industrial Average added 1.41% to 26,728.15, the S&P 500 advanced 1.3% to 2,976 and the tech-focused Nasdaq settled 1.75% higher at 8,116.83.
In commodities, October NYMEX WTI ticked up 4 cents to USD 56.30/bbl, while December COMEX gold dropped to USD 1,525.50/oz. The 10-year US government bond yield stood at 1.57%.
In the blue-chip segment, liquid names headed largely higher, with the gains led by IBM, Caterpillar, and Goldman Sachs Group, while Coca-Cola, Walmart, and Procter & Gamble stood out among the underperformers.
Ciena shares pulled back 3.83% after the telecom and network equipment maker released better-thanexpected 3Q financials but investors opted to take profit.
Slack Technologies shares tumbled 3.41% on 2Q financial results which came in better than expected even though guidance for the current quarter missed the median consensus.
Signet Jewelers shares soared 27% after the jewelry chain operator raised FY financial guidance.
Michaels Cos shares climbed 14.22% as the art supplies retailer intends to hire 15,000 seasonal employees during the Christmas holiday season.
Cyber security solutions provider Palo Alto Networks spiked 5.77% after releasing financial results for fiscal 4Q that beat analyst expectations.
The daily chart shows that the S&P 500 continues to trade within a rising band, with the upper line at 3,080 and the lower line at 2,835. Stochastic lines are on the buy side but have already reached overbought territory, so upside potential is limited.
Europe: all benchmarks but FTSE 100 end higher Key European indices turned in positive performance on Thursday, September 5 as trade war concerns eased following a comment from the Chinese Commerce Ministry that the US and China agreed to hold a new round of trade talks in Washington in October. Meanwhile, the UK’s equity market experienced a selloff amid unabated jitters about Brexit-related uncertainty. Exacerbating downbeat sentiment, several companies traded ex-dividend yesterday.
As regards macro data, Switzerland’s Q2 GDP increased 0.3% q-o-q and 0.2 y-o-y vs. expectations of 0.2% q-o-q and 0.9% y-o-y. In Germany, factory orders fell 2.7% m-o-m in July, while analysts, on average, projected -1.5% m-o-m.
Recapping the benchmarks, the French CAC 40 firmed 1.11%, the UK’s FTSE 100 Index slipped 0.55%, while the German DAX advanced 0.85%. The regional indicator STXE 600 closed 0.72% higher at 385.92.
Norwegian energy company spiked 8% after announcing a USD 5 bn share buyback program.
French aerospace equipment maker Safran soared 7.2% after reporting a 45% upsurge in H1 adjusted net income to EUR 1.35 bn (USD 1.49 bn). Moreover, the company upped full-year 2019 guidance for adjusted revenue and operating profit growth to 10% and 20%, respectively.
French aviation equipment maker Dassault Aviation spiked 8.2% after releasing an upbeat H1 report and reiterating full-year sales guidance.
European bourses have been little changed during the first half of trading on Friday, September 6 as upbeat sentiment about a potential new round of the US-China trade talks is offset by a cautious stance ahead of the US nonfarm payrolls report for August due out later today.
As regards macro data, Germany’s industrial output decreased 0.6% m-o-m in July, missing +0.3% m-o-m projected by a wide margin.
By 8:49 GMT, the French CAC 40 and the UK’s FTSE 100 were fractionally higher, the German DAX added 0.13%, while the regional indicator STXE 600 was off 0.03% at 385.80.
On the daily chart, the German DAX has broken through 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: markets trend higher Asian stock indices turned in mostly positive performance on Friday, September 6 on news that the US and China are set to enter a new round of trade talks early next month. Moreover, investors were heartened by US macro data such as the ADP employment report for August. Also, market participants are gearing up for the US nonfarm payrolls report due out later today.
Key macro data included Japan’s foreign exchange reserves that stood at USD 1,331.6 bn in August compared to USD 1,316.5 a month earlier. Furthermore, the country’s overtime pay increased 0.6% y-o-y in July.
The Japanese Nikkei 225 advanced 0.54%, the Chinese Shanghai Composite firmed 0.46%, Hong Kong’s Hang Seng added 0.66%, the South Korean KOSPI ticked up 0.09%, and the Australian S&P/ASX 200 closed 0.52% higher.
On the S&P/ASX 200, Speedcast International and Cooper Energy outperformed the broader market, soaring 10.92% and 7.04%, respectively. On the other side of the spectrum, Pro Medicus and Charter Hall Group sank 11.90% and 5.89%.
The Nikkei 225 gainers were led by Sekisui House and Mitsubishi Chemical Holdings, which surged 4.25% and 4.01%, respectively. Chiyoda and Pacific Metals were among the session’s worst performers, retreating 5.20% and 3.33%.
Apple component makers enjoyed demand, with AAC and Sunny Optical surging 4.86% and 4.85%.
In Australia, mining giant Rio Tinto closed 0.91% higher, while oil company Beach Energy gained 2.26%.
In the Australian banking sector, Westpac, National Bank of Australia, Australia & New Zealand Banking and Commonwealth Bank ended in the green.
Japanese heavyweights SoftBank and Rakuten traded down 2.78% and 5.20%, respectively.
Japanese automakers were well bid, with Honda Motor and Mazda Motor adding 3.0% and 2.6%.
From a technical standpoint, the Hang Seng is extending its ascent towards the resistance level at 27,000.
Oil prices have been trending lower on Friday but are set to close the week in the green. Since Monday, Brent has gained 1%, while WTI is up 2.4%. An upside driver over the past few sessions was news that Beijing and Washington plan to resume trade negotiations in early October. According to The Wall Street Journal, US representatives are cautiously optimistic about the talks and intend to take a wait-and-see attitude in order to assess China’s propositions. We note that Beijing and Washington have not held official trade negotiations since July.
The oil market drew additional support from upbeat US macro data which eased worries about a recession in the country and from the EIA petroleum status report, showing a sharp drawdown in inventories. Crude stockpiles contracted by 4.77 mn bbl, although analysts on average forecast just a 2.6 mn bbl drop. Gasoline and distillates declined by 2.4 mn bbl and 2.54 mn bbl, respectively. US oil output fell by 100,000 bpd to 12.4 mn bpd last week.
Non-ferrous metals are in decline on the LME, while gold dropped below USD 1,520/oz.
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