On 02 November, 2016 – Stocks swoon
Prospects of a fed funds increase in December plus US election uncertainty sent investors to the sidelines.
United States
US stocks retreated for a seventh day as election anxiety increased. Worries about future Federal Reserve policy also compounded the decline. Weaker oil prices shook investor confidence as well. The Dow Jones industrials were down 0.4 percent, the S&P retreated 0.7 percent and Nasdaq lost 0.9 percent. The S&P has experienced its longest decline since 2011.
Electronic Arts rose after the company’s quarterly results beat expectations. Brocade Communications jumped after Broadcom announced that it would buy the company for $5.5 billion. Broadcom also advanced. Chevron declined.
Market reaction to the Fed’s decision was relatively muted as the statement came largely as expected. The Federal Reserve continued its slow march toward higher interest rates. After its two day meeting the FOMC delivered the expected news that it would leave its fed funds target range from 0.25 percent to 0.5 percent a week before the U.S. presidential election. But the Fed’s post-meeting statement reinforced expectations that Fed officials do not plan to wait much longer to increase rates. “The committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives,” according to the FOMC.
ADP said that private employers added 147,000 new jobs in October. Weekly EIA petroleum inventories leaped 14.4 million barrels after a string of inventory declines.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$15.30 to US$1303.75. Copper futures were down 0.4 percent to US$2.22. WTI spot crude was down US$1.17 to US$45.50. Dated Brent spot crude was down US$1.01 to US$47.13. The US dollar was down against the yen, euro, pound and Swiss franc. It was unchanged against the Canadian and Australian dollars. The currency advanced against the yuan. The Dollar Index was down 0.4 percent. The yield on US Treasury 30 year bond was down 2 basis points to 2.56 percent while the yield on the 10 year note slipped 3 basis points to 1.80 percent.
Europe
The European markets opened to the downside Wednesday and remained in a narrow range for much of the session. Investors were cautious before today’s FOMC announcement which would be published after the European close. Traders are also waiting for the US presidential election results. Losses ranged from 0.8 percent to 2.5 percent. The FTSE declined 1.0 percent, the CAC was down 1.2 percent, the DAX slid 1.5 percent and the SMI was 0.8 percent lower. Italy’s MIB lost 2.5 percent.
Energy stocks were under pressure again as crude oil prices declined once again. Concerns over OPEC’s ability to come to an agreement on production cuts was already moving prices down and a larger than expected build in US crude inventories drove prices even lower.
Deutsche Lufthansa was lower after reporting a drop in third quarter sales and adjusted earnings. Hugo Boss advanced after its third-quarter profit beat forecasts. Banks including Deutsche Bank, Commerzbank, BNP Paribas, Société Générale and Crédit Agricole retreated. Both Total and Technip declined. Persimmon rose after the home builder said trading over the summer weeks immediately following the EU Referendum was encouraging. Next gained despite lowering its full-year sales expectations. In London, Standard Chartered, Barclays, Lloyds Banking Group and Royal Bank of Scotland tumbled. Royal Dutch Shell, BP and Tullow Oil were lower.
Eurozone October manufacturing PMI climbed to the strongest level in thirty-three months with a reading of 53.5 in October, up from 52.6 in the previous month. German seasonally adjusted jobless rate slid 0.1 percentage point to 6 percent, marking a new low since the German reunification in 1990. British construction PMI climbed to 52.6 from 52.3 in September.
Asia Pacific
Asian stocks fell across the board as the US presidential race appeared to tighten and investors waited for the Fed policy statement for guidance concerning a possible fed funds increase. Tumbling oil prices and fresh demand for safe-haven assets such as the Japanese yen, the Swiss franc and gold also kept investors on edge.
Both the Nikkei and Topix lost 1.8 percent after the yen strengthened and survey figures from Cabinet Office showed Japan’s consumer confidence weakened more than expected in October. Exporters Canon, Hitachi, Nissan Motor, Toyota, Toshiba, Mazda and Honda retreated as US election jitters rattled global markets and fueled demand for safe-haven assets such as the yen and gold. Takeda Pharmaceutical was lower on reports that the company is in talks to buy the gastrointestinal drugs business of Canada-based Valeant Pharmaceuticals. Sony dropped after its fiscal second quarter profit fell 86 percent. It was hit by a stronger yen and losses linked to the sale of its battery business. Sharp tumbled after reporting another fiscal second-quarter loss.
Both the S&P/ASX and All Ordinaries were down 1.2 percent. The big four banks retreated while BHP Billiton and Fortescue Metals Group tumbled. Energy stocks such as Woodside Petroleum, Oil Search, Origin Energy and Santos declined as oil prices fell once again. Gold miners Norther Star, Evolution Mining and Regis Resources climbed as gold prices hit one-month high on safe-haven demand.
The Shanghai Composite slid 0.6 percent. Traders were concerned about tightening liquidity before the upcoming initial public offering (IPO) of Bank of Shanghai. The Hang Seng lost 1.5 percent. The Kospi was 1.4 percent lower. South Korea’s president named a new prime minister and two other cabinet members in a bid to restore public confidence amid an ongoing political scandal. The Sensex was 1.3 percent lower.
Looking Forward
Australia posts September merchandise trade and retail sales data. China releases October general services PMI. India and the UK post October services PMI. The Eurozone releases September unemployment rate. The Bank of England publishes its monetary policy announcement and its Quarterly Inflation Report. In the US, third quarter productivity & costs, October services PMI and ISM nonmanufacturing index, September factory orders and the weekly jobless claims, money supply and Fed balance sheet will be reported.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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