On 28 January, 2016 – Global markets were mixed as they reacted to Wednesday’s FOMC announcement
US markets advanced thanks to higher oil prices.
United States
Stocks advanced Thursday thanks to higher oil prices and the strong earnings reports of Facebook and Under Armor. Concerns over the state of the global economic recovery following some cautious comments from the Federal Reserve weighed on global markets ahead of a raft of United States economic data. The Dow Jones industrials were up 0.8 percent, the S&P advanced 0.6 percent and the Nasdaq added 0.9 percent.
Stocks spent much of the early session swinging between gains and losses after oil prices surged on optimism over potential production cuts. Comments from the Organization of the Petroleum Exporting Countries tempered that optimism, causing crude to pare its gains.
Facebook surged after it reported that its profit more than doubled. However Abbott Labs retreated. Amazon which reports earnings after the US markets close advanced. eBay’s shares tumbled on disappointing guidance. PayPal, which was spun-off from eBay last year, surged and Under Armour jumped. Revenue at both companies beat estimates. Caterpillar gained even though the company forecast a bigger decline in sales for the remainder of the year. Weak earnings from some healthcare companies sent stocks in that sector sliding.
Amazon.com reported a 21.8 percent rise in quarterly revenue, helped by strong holiday shopping and robust growth in its cloud services business. The company said its profit rose to $482 million or $1.00 per share in the fourth quarter ended December 31 from $214 million or 45 US cents per share a year earlier. Net sales rose to $35.75 billion from $29.33 billion. Microsoft reported better than expected adjusted earnings and revenue for its latest quarter, as its cloud business continued to drive growth.
Jobless claims declined 16,000 to 278,000 in the latest week. December durable goods orders tumbled 5.1 percent. Excluding transportation, orders were down 1.2 percent.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$2.25 to US$1,114.00. Copper futures were down 0.6 percent to US$2.05. WTI spot crude was up US$1.41 to US$33.71. Dated Brent spot crude was up US$1.30 to US$34.40. The US dollar was down against the euro, pound, Swiss franc and the Canadian and Australian dollars. However, it advanced against the yen. The Dollar Index was down 0.4 percent. The yield on both the US Treasury 30 year bond slipped 1 basis point to 2.79 percent and the yield on the 10 year note edged down 2 basis points to 1.98 percent.
Europe
European markets ended trading Thursday solidly in the red. Disappointing economic data were largely responsible for the drop, with Eurozone economic confidence falling to a 5-month low. The sharp drop in US durable goods orders weighed on investors. Investors were in a negative mood early after another drop in the Chinese stock market. The FTSE was down 1.0 percent, the CAC declined 1.3 percent, the DAX dropped 2.4 percent and the SMI lost 2.0 percent.
Investors had their first opportunity to react to Wednesday’s announcement from the Federal Reserve. Monetary policy was unchanged while the FOMC acknowledged economic weakness overseas could be a threat to the US recovery. At the same time, the Fed did not completely rule out a rate increase at its next meeting in March.
Crude oil prices climbed back above $33 per barrel on speculation that OPEC may be willing to curb supply. Russian officials have hinted at possible coordination with Saudi Arabia and other OPEC countries on output cuts to arrest the decline in prices.
Deutsche Bank declined after it posted a net loss of €6.8 billion for 2015, hurt by legal costs and weak bond trading at its investment bank. Metro was down on a broker downgrade. Merck and Bayer retreated. EDF climbed after the electric utility approved a €5 billion capital increase after agreeing on the final valuation of AREVA NP activities to be acquired by the company. Banks Société Générale, Crédit Agricole and BNP Paribas finished lower.
Technip and Total advanced. In London, Diageo declined after its first-half profit growth fell short of expectations. Tullow Oil and Royal Dutch Shell gained as oil prices steadied above $33 a barrel on speculation that large producers may be inching closer to a collective cut in production. BG Group was up after its shareholders approved the company’s combination with Royal Dutch Shell. Anglo American surged after saying copper production has increased 23 percent in the fourth quarter. Roche dropped in Zurich, after its full-year earnings came in slightly below forecasts.
January Eurozone economic confidence deteriorated to a five month low as the stock market turmoil and slowdown in China weighed on sentiment across all sub-sectors. The economic confidence index dropped to 105 from a revised 106.7 in December. UK fourth quarter gross domestic product first estimate indicated that the economy grew 0.5 percent on the quarter and 1.9 percent from a year ago. Travel and leisure stocks, including cruise operator Carnival and airlines IAG and easyJet, all declined, hit by a rallying oil price as Brent Crude touched a three week high.
Asia Pacific
Stocks were mixed after the Federal Reserve warned of slowing growth and Chinese shares succumbed to another late-session selloff. The major US averages fell overnight after the Federal Reserve provided little guidance about when it would raise interest rates again, but stressed that economic conditions will evolve in a manner that warranted only gradual rate increases. Asian stocks avoided big losses in early trading as investors took comfort in the Fed’s assurances that it was “closely monitoring” global economic and financial developments. The initial optimism gave way to caution as oil fell for the first time in three days and Chinese shares floundered again in light trading.
The Shanghai Composite dropped 2.92 percent. The Hang Seng however, added 0.8 percent after the People’s Bank of China pumped the largest amount of cash into the financial system in nearly three years in a bid to prevent a possible cash crunch ahead of the week-long Lunar New Year starting on February 8.
The Nikkei retreated 0.7 percent prior to the Bank of Japan’s policy announcement Friday. Oil stocks Inpex, JX Holdings and Japanese Petroleum swooned after crude oil futures fell in Asian deals. Suzuki Motor advanced but Toyota ended little changed after sharp gains the previous day on reports they were discussing a partnership in technologies. Sharp rallied after Taiwanese manufacturer Foxconn Technology Group detailed its offer for troubled electronics maker. Aeon ended flat and Seven & I Holdings and Fast Retailing declined after Japan’s December retail sales were down 1.1 percent from a year earlier.
Both the S&P/ASX and All Ordinaries added 0.6 percent on bargain hunting. BHP Billiton and Rio Tinto advanced. Fortescue Metals Group climbed after lifting production and lowering costs in the December quarter. Gold miner Newcrest Mining gained after releasing its December quarterly production report. The big four banks closed higher. The Kospi was up 0.5 percent. Samsung Electronics retreated after it warned of weaker profits for 2016 after reporting a 40 percent decline in fourth-quarter profit. It also unveiled plans for a share buyback. The Sensex slipped 0.1 percent.
Global Stock Markets
Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
Japan reports December consumer prices, unemployment, household spending and industrial production. The Bank of Japan announces its monetary policy decision. France releases flash fourth quarter GDP and December consumer consumption of manufactured goods. The Eurozone posts December M3 money supply and January flash harmonized index of consumer prices. In the US, the first estimate of fourth quarter GDP and the employment cost index will be posted along with November international trade in goods and January Chicago PMI and consumer sentiment.
*Note — all releases are listed in local time.