OECD inflation slows to 2.1%
Consumer prices in the OECD area increased 2.1% y-o-y in June, slowing from 2.3% y-o-y in the previous month. It represents the lowest reading since February this year. According to the OECD’s news release, annual inflation slowed as energy prices fell 0.1%, following the 2.4% increase in May. Food price inflation also slowed to 2.3%, compared with 2.5% in May, while annual inflation excluding food and energy increased marginally to 2.2%, compared with 2.1%. In June 2019, annual inflation decreased in Canada (to 2.0% from 2.4% in May), the US (to 1.6% from 1.8%) and Italy (to 0.7% from 0.8%). It was stable in Japan (at 0.7%) and in the United Kingdom (at 1.9%). Annual inflation picked up in France (to 1.2% from 0.9%) and Germany (to 1.6% from 1.4%). Annual inflation in the Euro area, as measured by the HICP1, picked up to 1.3% in June, compared with 1.2% in May. Excluding food and energy, euro area inflation also increased to 1.1% in June, compared with 0.8% in May. Eurostat’s flash estimate points to inflation slowing to 1.1% in July, or only 0.9%, excluding food and energy. Among non-OECD economies, annual inflation decreased marginally, but remains very high in Argentina (to 55.8% from 57.3%), Brazil (to 3.4% from 4.7%) and India (to 8.6% from 8.7%). Annual inflation was stable in China (at 2.7%) and Indonesia (at 3.3%) and picked up marginally in South Africa (to 4.5% from 4.4%). In the Russian Federation, consumer prices rose 4.7% in June, down from 5.1% in the previous month.
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Daly: further Fed measures will depend on developments in the US-China trade conflict
San Francisco Fed President Mary C. Daly claimed that she closely monitors tensions in US-China trade relations in order to understand the further path of the Fed’s monetary policy. Thinking about what to do next, she really pays attention to these restraints, she said, adding that trade tensions have increased to date. Mary C. Daly, who was appointed President of the Federal Reserve Bank of San Francisco in October 2018, noted that she backs last week’s FOMC decision to cut the federal funds rate by 0.25% to offset a slowdown in the US economy amid uncertainty about global growth and trade. According to her, so far it is difficult to say which actions could be necessary over the next few months. Perhaps a decline in business investment and slower economic growth could require additional monetary easing on the part of the Federal Reserve.
Fitch affirms Lithuania at A-
International rating agency Fitch Ratings has affirmed Lithuania’s A- credit rating, with a positive outlook. The rating reflects a balance between solid economic conditions and the country’s government finances, with a vulnerability to external shocks. Fitch is upbeat about the Lithuanian economy, its fiscal policy and public authorities’ positive financial results. Fitch Rating experts believe that the country’s macro data will remain stable going forward. The positive outlook shows that Fitch could upgrade Lithuania’s credit rating over the next two years if economic growth and some other indicators extend a positive trend and will not deviate substantially from the agency’s forecast.
US: benchmarks rebound after downslide
Key US stock market indices landed in the green on Tuesday, August 6, despite concerns about trade disagreements between Beijing and Washington. US benchmarks corrected higher after falling sharply during the past two sessions, with only 7 out of 30 Dow components closing in negative territory.
The US-China trade conflict continues to produce a negative effect on global equity markets. However, neither of the parties has yet voiced an abrupt refusal to hold the trade talks, so a trade deal is still possible. At the same time, some experts think that the trade conflict, which has lasted twelve months already, could be enduring and become the background for US elections next year. Moreover, President Donald Trump is supposed to threat about new tariffs in order to bring uncertainty and prompt the Fed to cut rates.
No market-driving macro data came out yesterday.
Recapping the indices, the blue-chip index Dow Jones Industrial Average advanced 1.21% to 26,029.52, the S&P 500 jumped 1.3% to 2,881.77 and the tech-heavy Nasdaq closed 1.39% higher at 7,833.27.
In commodities, September NYMEX WTI skidded 1.9% to USD 53.63/bbl, whereas December COMEX gold jumped 0.5% to USD 1,484.20/oz. The 10-year US government bond yield stood at 1.74%.
Among the advancers, payment system operator Mastercard gained 3.1% on news it agreed to acquire Dutch technology firm Nets for EUR 2.85 bn (USD 3.19 bn).
Among the underperformers, theme park operator SeaWorld Entertainment lost 1.37%, although it moved higher in early hours after reporting profit in the past quarter that surpassed the Street’s median consensus.
The biggest US dairy producer Dean Foods crashed 36.53% on financial results that disappointed investors. It should be noted that the company’s loss exceeded the forecast and revenue missed expectations.
Weak earnings reports released by hotel chain operator Marriott International and fertilizer producer Mosaic dragged down their stocks, with Marriott giving up 1.42% and Mosaic plunging 6.69%.
The daily chart shows that the S&P 500 has repeatedly broken out of the lower line of Bollinger Bands, while the Slow Stochastic Oscillator is set to exit oversold territory. Consequently, we expect the index to correct higher in the short term.
Europe: markets extend downtrend
Key European stock indices landed moderately lower on Tuesday, August 6, failing to rebound after Monday’s sell-off. To remind, global markets came under pressure after the Chinese central bank let the yuan depreciate to a 11-year low, while the US labeled China a currency manipulator. The US-China trade conflict escalated even further when China suspended purchases of US agricultural products.
During yesterday’s session, European equities attempted to rebound on news that the yuan corrected higher, but erased all daily gains by the close.
As regards macro data, Germany’s factory orders increased 2.5% in June, beating 0.5% expected by a wide margin, but this positive reading was not enough to improve sentiment.
Recapping the benchmarks, the UK’s FTSE 100 dipped 0.70%, the French CAC 40 retreated 0.10%, the German DAX slid 0.80%, and the Italian FTSE MIB decreased 0.70%.
The regional indicator Stoxx 600 closed 0.47% lower at 367.71.
French media company Vivendi added 4% on news that it plans to sell a 10% equity stake in Universal Music to China’s technology giant Tencent.
Rolls-Royce plunged 6.9% as it reported weak half-year earnings, citing persistent problems with Trent 1000 engines.
Deutsche Post picked up 3.4% after reporting an increase in quarterly sales and guiding for upbeat H2 performance.
British industrial player Rotork spiked 7.6% as investors were impressed by its H1 earnings.
German retailer Metro sank 7.6% on news that Czech businessman Daniel Kretinsky will not improve its takeover bid.
Key European stock indices have been trading moderately higher during the first half of Wednesday, August 7, as investors continue to monitor yuan performance and the reference rate set by China’s central bank. Bullish sentiment is returning to markets as the yuan corrected to the upside.
By 8:10 GMT, the UK’s FTSE 100 picked up 0.30%, the German DAX rose 1.03%, and the French CAC 40 advanced 0.72%. The regional barometer STXE 600 was up 0.59% at 369.89.
The daily chart shows that the German DAX has broken through a descending wedge and reached the 50-day moving average, while the Slow Stochastic Oscillator is trading deeper in oversold territory. As a result, a breather in the current downturn could be in the offing.
Asia: equities see trendless trading
Asian stock indices turned in mixed showings on Wednesday, August 7. Notably, markets drew support from an earlier positive close in US equities as well as Trump’s reassurances that he is does not want a lengthy trade war with China.
Key macro data included Japan’s foreign exchange reserves that stood at USD 1,316.5 bn in April compared to USD 1,322.3 a month earlier. In Australia, the AIG construction PMI for July came in at 39.1, down from 43.0 in June.
In other news, the Reserve Bank of India held a policy meeting, at which policymakers decided to cut the key rate to 5.40% from 5.75%, while analysts, on average, expected a rate cut to 5.50%. Moreover, the regulator left the cash reserve ratio unchanged at 4.0%, in line with the consensus forecast, and lowered the reverse repo rate to 5.15% from 5.50% compared to 5.25% projected.
The Japanese Nikkei 225 eased 0.33%, the Chinese Shanghai Composite slipped 0.32%, Hong Kong’s Hang Seng added 0.08%, the South Korean KOSPI retreated 0.34%, while the Australian S&P/ASX 200 closed 0.64% higher.
The S&P/ASX 200 standout advancers included Pinnacle Investment Management and Resolute Mining, which soared 8.89% and 8.71%, respectively. On the other side of the ledger, Fortescue Metals Group and Cooper Energy pulled back 3.77% and 3.57%.
The Nikkei 225 gainers were led by Yokogawa Electric and Keio, which surged 4.87% and 2.94%, respectively. Among the decliners, SUMCO and Nikon plunged 9.25% and 7.97%.
Japanese exporters came under pressure as the yen appreciated. Specifically, Honda Motor and Mitsubishi Electric shed over 0.9%.
Beverage maker Kirin Holdings slipped 5.2% after reporting a JPY 7.31 bn half-year loss.
Semiconductor maker SUMCO tanked 9.25% after reporting a 18% decrease in half-year profit.
Fancl added 1% on news that Kirin Holdings intends to acquire a 30.3% equity stake in the company.
Audio equipment maker JVC Kenwood shot up 19% after reporting a 78% upsurge in quarterly operating profit.
Japan’s Yokogawa Electric rose 4.87% after reporting a 37% increase in quarterly profit.
In the Australian banking sector, Westpac, National Bank of Australia, and Australia & New Zealand Banking ended in the green, while Commonwealth Bank edged down 0.89%.
From a technical standpoint, the Hang Seng has bounced off the lower end of a descending band in the vicinity of 25,470.
Oil prices have been relatively stable on Wednesday after falling sharply in the previous session, with Brent hitting the lowest mark YTD. It should also be noted that Brent has declined by over 20% from its April peak, entering a bearish trend. Pressure came from worries about a global economic slowdown and, as a consequence, weaker crude demand amid escalation in the US-China trade conflict. Meanwhile, investors shrugged off Tuesday’s API numbers, according to which US inventories showed a 3.4 mn bbl drawdown. If the API numbers are confirmed by today’s EIA petroleum status report, this will mark an eighth straight weekly decline in stockpiles.
In a report, Fitch Solutions experts considerably reduced their forecast for Brent prices over the next three years on expectations that global trade turmoil will continue to put pressure on sentiment and physical oil demand. Now Fitch expects Brent to average USD 67/bbl in 2019, USD 65/bbl in 2020 and USD 61/bbl in 2021. Earlier the forecast was USD 70/bbl, USD 76/bbl and USD 80/bbl, respectively.
Non-ferrous metals have traded sideways on the LME, while gold climbed to USD 1,500/oz
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