On 16 December, 2016 – Investors adjust to Fed rate increase

December 19, 2016

Stocks mixed both on Friday and for the week.
United States
US stocks retreated Friday, weighed down by a drop in Oracle while recently battered stocks in the real estate and utilities sectors posted gains. Analysts said that investors were anxious and turned to defensive sector stocks as well as US Treasuries after a report that a Chinese Navy warship seized a US underwater drone Thursday in international waters in the South China Sea. (China said over the weekend that it would return the drone.) The Dow Jones industrials were virtually unchanged (down 8.83 points) while the S&P and Nasdaq were down 0.2 percent and 0.4 percent respectively. For the week, the Dow added 0.4 percent while both the Nasdaq and S&P slipped 0.1 percent.
Oracle dropped after its adjusted revenue missed estimates. Utilities and real estate stocks advanced. Gerdau, Cliffs Natural Resources and Schnitzer Steel tumbled. Airline, trucking, brokerage and railroad stocks also were weak Friday, while strength was visible among commercial real estate, utilities and gold stocks.
November housing starts plummeted 18.7 percent to an annualized rate of 1.090 million from the revised October estimate of 1.340 million. Permits declined 4.7 percent to an annualized rate of 1.201 million from a revised 1.260 million in October.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$4.65 to US$1,131.60. Copper futures were down 1.4 percent to US$2.56. WTI spot crude was up US$1.00 to US$51.90. Dated Brent spot crude was up US$1.19 to US$55.21. The US dollar was up against the Australian dollar and yuan. However, it declined against the euro, yen, pound and Swiss franc. It was unchanged against the Canadian dollar. The Dollar Index was down 0.3 percent. The yield on US Treasury 30 year bond was up 1 basis point to 3.17 percent while the yield on the 10 year note slipped 1 basis point to 2.59 percent.
Europe
Most stock markets advanced on Friday and for the week. The FTSE and SMI were up 0.2 percent while the CAC and DAX added 0.3 percent. On the week, the FTSE gained 0.8 percent, the CAC advanced 1.4 percent, the DAX was up 1.8 percent and the SMI was 1.6 percent higher.
The Ifo Institute upwardly revised its economic forecast for Germany for 2017 and 2018. However, growth is expected to be weaker than in 2016 due to a lower number of working days. Germany is expected to grow 1.5 percent in 2017 and improve to 1.7 percent in 2018.
Greece’s economic growth is expected to improve strongly in the coming years as capital controls are removed and investment recovers on conclusion of the country’s bailout reviews according to the Bank of Greece. The bank forecast a modest 0.1 percent growth for this year and is expected to surge to 2.5 percent next year. Growth was expected to be 3 percent in 2018 and 2019, supported by investment, consumption and exports.
Reports that Sanofi is involved in advanced talks to acquire Actelion sparked interest in the drug sector. A recovery in commodity prices also provided a boost to some resource stocks. Air Berlin advanced after it announced the execution of a wet lease agreement with the Deutsche Lufthansa group under which Air Berlin PLC & Co. Luftverkehrs KG will provide in total 38 A319 and A320 aircraft together with cockpit and cabin crew to Eurowings and Austrian Airlines. The initial term of the agreement is six years.
Shire and Hikma Pharmaceuticals gained. Actelion surged after Bloomberg reported that Sanofi is in advanced talks to acquire the company. Sanofi dropped in Paris. Energy stocks including BP and Royal Dutch Shell were higher. Micro Focus International, the British firm buying Hewlett Packard Enterprise’s software business, declined after a broker downgrade. ”
Miners including Antofagasta, Anglo American and Glencore retreated.
Asia Pacific
Asian stocks were mixed Friday in lackluster trading as investors adjusted to the prospects of higher US interest rates. The stronger US dollar weighed on commodity prices.
Both the S&P/ASX and All Ordinaries slipped 0.1 percent reflecting weakness in resources stocks. BHP Billiton and Rio Tinto declined while Fortescue Metals rose after the iron ore miner said it will repay another $1 billion of its debt next week. Gold miners Newcrest Mining and Evolution Mining retreated after gold prices tumbled to their lowest since February. Both indices lost 0.5 percent on the week.
The Nikkei and Topix were up 0.7 percent and 0.5 percent respectively boosted by a weaker yen. On the week, the Nikkei was up 2.1 percent and the Topix added 1.7 percent. Panasonic declined despite a report in the Nikkei business daily that the company will supply solar panels to US-based Tesla Motors. Nintendo’s declined ahead of the release of its “Super Mario Run” smartphone game on Apple’s iOS. Among auto makers, Mitsubishi Motors, Mazda Motor and Nissan Motor advanced.
The Shanghai Composite was up 0.2 percent while the Hang Seng Index retreated 0.2 percent. On the week, the Shanghai Composite was down 3.4 percent while the Hang Seng lost 3.3 percent. According to the state-run Securities Daily, the People’s Bank of China pumped 600 billion yuan into the financial system over the past two days, stabilizing the bond and stock markets, The move followed an unprecedented plunge of the bond futures market that triggered a temporary trading halt Thursday.
The Kospi advanced 0.3 percent Friday and added 0.9 percent on the week. The Sensex slipped 0.1 percent on the day and was down 1.0 percent on the week.
Looking Forward

Central Bank activities

Dec 20

Japan

Bank of Japan Monetary Policy Announcement

The following indicators will be released this week…

Europe

Dec 19

Germany

Ifo Business Survey (December)

Dec 20

Germany

Producer Price Index (November)

Dec 21

Eurozone

Consumer Confidence (December)

Dec 23

France

Consumption of Manufactured Goods (November)

Gross Domestic Product (Q3.2016 final)

Asia Pacific

Dec 19

Japan

Merchandise Trade Balance (November)

Americas

Dec 21

United States

Existing Home Sales (November)

Dec 22

Canada

Consumer Price Index (November)

Retail Sales (October)

United States

Initial Unemployment Claims (week ending prior Saturday)

Durable Goods Orders (November)

Gross Domestic Product (Q3.2016 final)

Personal Income & Spending (November)

Dec 23

Canada

Monthly Gross Domestic Product (October)

United States

Consumer Sentiment (December final)

New Home Sales (November)

Global Stock Markets

*Note — all releases are listed in local time.

Source: Fidelity

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