Bullard sees room for another rate cut in 2019
St. Louis Fed President James Bullard said in an interview he has one more Fed funds rate hike “penciled in” for 2019, but is not sure it would be needed. He thinks it is too early to tell whether the regulator will necessarily continue monetary easing. According to Bullard, it would be wise to “take stock about how the accommodation we’ve put in place has had an impact.” Policymakers have “already done quite a bit” to help the economy, while interest rates are currently “in the right neighborhood,” Bullard said. The FOMC’s next meeting is scheduled for the middle of September. Bullard said he wasn’t going to provide forward guidance about September or any other FOMC meetings going forward, but left open the possibility for further monetary policy easing. However, he disagreed that the regulator’s stance should be dependent on US-China trade frictions, noting that “US monetary policy cannot reasonably react to the day-to-day, give-and-take of trade negotiations,” as “it would only add to the volatility.” While global trade uncertainty is “a key risk,” Bullard said trade tension is likely to persist, in one form or another, for “years ahead.” To remind, James Bullard, a FOMC voting member this year, is known as a prominent dove, who have repeatedly called to postpone a rate hike given the absence of clear signals for higher inflation.
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German industrial output drops in June
Germany’s industrial output fell 1.5% in June compared with May when the indicator rose 0.1%, the Federal Statistical Office (Destatis) said in a report. Meanwhile, analysts on average expected just a 0.5% decrease. Industrial output declined 5.2% y-o-y vs. a forecast 3.1% drop. Consumer goods production in Germany fell 1.4% m-o-m in June, while means of production manufacture dropped by 1.8% and the output of intermediary products fell by 2%. Energy production dropped 1.6%, while construction rose 0.3%. Meanwhile, industrial orders placed at German industrial concerns in June, based on Destatis data, jumped 2.5% vs. May, the highest monthly increase since August 2017.
China exports unexpectedly rise in July
China’s exports jumped 3.3% y-o-y to USD 221.53 bn in July, the National Bureau of Statistics of China (NBS) reported. Analysts forecast a 1% contraction. Imports declined by 5.6% to USD 176.48 bn against an expected 9% decrease. In July, China’s trade surplus fell from USD 50.97/bbl to USD 45.06 bn. China’s trade deficit with the US dropped from USD 29.92 bn in June to USD 27.97 bn in July. Exports of goods and services to the US declined 7.8% y-o-y, while US exports slid by 28.3%. China reported a trade surplus of USD 1.38 bn in trade operations with Canada, USD 22.23 bn with Hong Kong, USD 14.38 bn with the EU, and USD 5.66 bn with India. Meanwhile, the foreign trade deficit with Taiwan amounted to USD 10.05 bn, USD 2.52 bn with Japan, USD 4.91 bn with South Korea and USD 7.54 bn with Australia.
US: bulls advance after lunch
US equities turned in mixed performance on Wednesday, August 7. Pressure came from continuing tension about the US-China trade war. The indices, however, drew support from actions taken by Indian and New Zealand central banks which cut their interest rates. Investors opted to pick up defensive assets.
On Wednesday, President Donald Trump again criticized the Federal Reserve, accusing it of being too slow in monetary easing.
On the data front, the EIA petroleum status report came out, showing a 2.38 mn bbl build in inventories compared with an 8.49 mn bbl drawdown a week earlier. Analysts anticipated a 2.84 mn bbl decline.
Recapping the indices, the Dow Jones Industrial Average inched down 0.09% to 26,007.07, the S&P 500 ticked up 0.08% to 2,883.98 and the Nasdaq advanced 0.38% to 7,862.83.
In commodities, September NYMEX WTI decreased by USD 2.54 to USD 51.09/bbl, while December COMEX gold jumped to USD 1,519.60/oz. The 10-year US government bond yield stood at 1.729%.
In the blue-chip universe, liquid names traded sideways, with Walgreens Boots Alliance, Coca-Cola, and Visa leading the gainers, while Walt Disney, J.P. Morgan Chase and IBM stood out among the underperformers.
Among the top performers, pharmacy chain operator CVS Health spiked 7.45% on financial results. Net income totaled USD 1.94 bn, or USD 1.49 bn, compared with a USD 2.56 bn loss, or USD 2.52 per share, a year ago.
Fast food restaurant operator Wendy’s spiked 8.18% after releasing 2Q financials.
Pharmaceutical firm Teva Pharmaceutical Industries spiked 3.26% as adjusted EPS for the second quarter topped expectations.
Office supply retailing company Office Depot closed 0.57% higher as its financial results beat analyst expectations.
Media giant Walt Disney plunged 5.1% after the publication of its financial results for fiscal 3Q. Revenue jumped by 32.9% y-o-y but missed the median consensus of USD 1.16 bn.
Lumber Liquidators Holdings shares tanked by 9.95% after reducing LFL sales guidance.
The daily chart shows that the S&P 500 continues to trade within a rising wedge, with the upper bound at 3,080. Stochastic lines are on the buy side and still far from overbought territory, so we expect the index to move further higher.
Europe: markets trend broadly higher
Key European stock indices landed mostly in positive territory on Wednesday, August 7, despite lingering investor concerns about the US-China trade dispute. In sectoral terms, travel and leisure names stood out among the advancers, while O&G stocks underperformed, tracking a decline in oil prices.
On Wednesday, the Chinese central bank fixed the midpoint for onshore yuan trading at 6.9996 per dollar, slightly weaker than expected. To remind, the yuan midpoint reached 7.0 early in the week, prompting Donald Trump to label China a currency manipulator.
In the meantime, incoming corporate earnings remain in the spotlight. Specifically, traders were let down by Commerzbank’s report and forward guidance.
As regards macro data, Germany’s industrial output for June was down 1.5% m-o-m, missing -0.4% m-o-m by a wide margin. Moreover, the previous reading was downwardly revised to 0.1% m-o-m from 0.3% m-o-m.
Recapping the benchmarks, the UK’s FTSE 100 added 0.38%, the French CAC 40 firmed 0.61%, and the German DAX advanced 0.71%. The regional barometer STXE 600 closed 0.24% higher at 368.60.
Commerzbank plunged 6.4% after reporting worse-than-expected quarterly revenue and guiding that it is becoming increasingly difficult to meet full-year earnings targets.
Italy’s largest lender UniCredit slid 4.9% after trimming full-year revenue guidance, citing a slowdown across European economies and weak online banking sales.
German auto component maker Continental added 0.9% on news that it is planning to cut jobs in a broader cost reduction effort.
The list of outperformers included German chemical players Lanxess and Bayer, which surged 4.04% and 5.84% on reports that they sealed deals to sell their equity stakes in chemical park operator Currenta for EUR 3.5 bn (USD 3.9 bn).
Key European stock indices have been on the rise during the first half of Thursday, August 8, led by gains in pharmaceutical names such as Merck KGaA and Novo Nordisk.
By 9:07 GMT, the UK’s FTSE 100 picked up 0.16%, the German DAX rose 0.74%, and the French CAC 40 advanced 1.09%. The regional barometer STXE 600 was up 0.75% at 371.38.
The daily chart shows that the German DAX has retraced within Bollinger bands after having repeatedly broken through their lower line, while the Slow Stochastic Oscillator is about to exit oversold territory. As a result, an upturn could be in the offing.
Asia: equities close higher
Asian stock indices turned in mostly positive dynamics on Thursday, August 8. Notably, China’s central bank has today fixed the midpoint for onshore yuan trading at 7.0039 per dollar, the lowest mark since 2008, while analysts, on average, expected 7.0156.
On the macro data front, Japan’s net foreign investment came out, with the weekly inflow at JPY 37.5 bn compared to a JPY 109.9 bn outflow a week earlier. China’s trade surplus reached USD 45.06 bn in July compared to USD 40.0 bn projected. Furthermore, the country’s exports rebounded 3.3% y-o-y in the same month, outpacing -2.0% y-o-y expected by a wide margin, while imports decreased 5.6% y-o-y vs. -8.3% y-o-y expected. Singapore’s retail sales fell 2.2% m-o-m in July. In y-o-y terms, the indicator was down 8.9%.
The Japanese Nikkei 225 added 0.37%, the Chinese Shanghai Composite jumped 0.93%, Hong Kong’s Hang Seng firmed 0.48%, the South Korean KOSPI advanced 0.90%, and the Australian S&P/ASX 200 closed 0.75% higher.
On the S&P/ASX 200, Galaxy Resources and Western Areas outperformed the broader market, spiking 10.48% and 9.46%, respectively. On the other side of the spectrum, Australia Group and AGL Energy plunged 5.01% and 4.95%.
The Nikkei 225 gainers were led by Sumitomo Osaka Cement and Comsys Holdings, which soared 8.60% and 8.09%, respectively. IHI and Marui Group were among the session’s worst performers, plummeting 13.63% and 13.23%.
Japanese telecom giant SoftBank Group shed 2% despite reporting record-high quarterly profit. However, stellar earnings were due to a one-off gain from the sale of an equity stake in Alibaba.
Software developer Justsystems shot up 19.6% on the back of strong quarterly earnings.
In the technology sector, Lasertec and Optorun advanced over 8% after reporting positive quarterly earnings.
Cement producer Sumitomo Osaka Cement surged 8.6% as quarterly profit beat expectations.
Industrial equipment maker IHI tanked 13.6% after reporting weak quarterly earnings.
From a technical standpoint, the Hang Seng continues to form a corrective rebound, heading towards the 27,000 mark.
Oil prices have increased substantially on Thursday after falling sharply yesterday, when crude declined to YTD lows. A rebound was sparked by Bloomberg news that Saudi Arabian authorities held telephone negotiations with other oil producers and discussed possible oil-supporting measures. According to the agency’s sources, Saudi Arabia does not intend to accept an enduring contraction in the oil market and explores all possible scenarios. To remind, Riyadh is the world’s biggest oil exporter. Meanwhile, Saudi Arabia has already agreed to reduce output more than required by the current terms of the OPEC+ deal.
Meanwhile, pressure came from worries about further escalation in the US-China trade conflict. In addition, the EIA petroleum status report did not please the oil bulls either as US crude inventories showed a build of 2.39 mn bbl, while analysts on average expected a 2.8 mn bbl drawdown. Gasoline and distillates increased by 4.44 mn bbl and 1.53 mn bbl, respectively. US oil output grew by 100,000 bpd to 12.3 mn bpd.
Non-ferrous metals have increased resolutely on the LME, while gold stabilized near USD 1,510/oz after rising substantially in the previous sessions.
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