On 29 June, 2017 – Asian stocks rallied while those in the US and Europe
Shares tumbled on changed interest rate expectations.
United States
US stocks gave back Wednesday’s gains as investors sold technology and other sectors and bought banks and energy companies. Utilities, real estate companies and other high-dividend stocks also tumbled as bond yields rose on expectations of higher global interest rates. The Dow Jones industrials declined 0.8 percent, the S&P lost 0.9 percent and the Nasdaq tumbled 1.4 percent. There are expectations that central banks — not just the Fed — are ready to lift interest rates.
Technology companies continued to slide, led by semiconductor manufacturers. Advanced Micro Devices, Lam Research and Seagate Technology retreated. Both Apple and Microsoft also were lower. Rite Aid tumbled after Walgreens Boots Alliance abandoned a bid to buy the rival drugstore chain following resistance from US regulators. Walgreens said it will now buy more than 2,000 stores, three distribution centers and inventory in a new deal. Walgreens gained.
Staples rose after private equity firm Sycamore Partners agreed to buy the office supplies chain for $6.9 billion. Acuity Brands rallied after the lighting company’s latest quarterly earnings and sales exceeded expectations. Citigroup and JPMorgan were up along with Regions Financial and Bank of America. Nike shares advanced after markets closed on better than expected earnings.
The third estimate of first quarter was revised upward to an annualized rate o f1.4 percent from the previous estimates of 1.2 percent and 0.7 percent. Consumer spending was revised upward to 1.1 percent from prior estimates of 0.6 percent and 0.3 percent.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$4.50 to US$1,243.50. Copper futures were up 0.65 percent to US$2.69. WTI spot crude was up 14 US cents to US$44.88. Dated Brent spot crude was up 9 US cents to US$47.40. The US dollar was down against its major counterparts including the yen, euro, pound, Swiss franc and the Canadian and Australian dollars. The Dollar Index was down 0.5 percent. The yield on US Treasury 30 year bond was up 5 basis points to 2.82 percent while the yield on the 10 year note was up 4 basis points to 2.26 percent.
Europe
Stocks in Europe tumbled Thursday. The continued strength of the euro drove down automakers and other exporters but gains among bank and mining stocks failed to outweigh their losses. Bank stocks climbed after US banks passed their stress tests. Mining stocks benefited from rising metal prices, including copper. The FTSE was down 0.5 percent, the CAC dropped 1.9 percent, the DAX sank 1.8 percent and the SMI was 1.5 percent lower.
According to the Bank of England’s chief economist Andrew Haldane, the BoE needs to explore the possibility of raising interest rates if inflation continues to accelerate. He said that the monetary policy committee needs to look seriously at the possibility of raising interest rates to keep the lid on those cost of living increases. Further he said that for now “we are happy with where rates are but we need to be vigilant for what happens next.”
Deutsche Bank advanced after a US federal judge dismissed a lawsuit accusing the bank of concealing major deficiencies in its anti-money laundering controls. RWE and Enel retreated on expectations that rising interest rates may hurt investment returns through dividends. EDF was lower. Nuclear experts at the French nuclear safety authority have said that its Flamanville 3 nuclear reactor being built in northwest France is fit for service despite weak spots in its steel. Carrefour slid after its Brazilian unit unveiled details for a possible $1.7 billion initial public offering next month.
JD Sports plunged after the company said it is on track to deliver a full-year result in line with market expectations. HSBC Holdings jumped on a broker upgrade. Rio Tinto rallied after receiving shareholder approval for the sale of Coal & Allied Industries to China-backed Yancoal Australia. Hennes & Mauritz gained in Stockholm after its second quarter profit increased by 10 percent. Lindt & Sprüngli declined. LafargeHolcim weakened after a broker downgrade. Nestlé, Novartis and Roche declined. However, Credit Swiss and UBS advanced.
June Eurozone economic confidence strengthened more than expected. The economic sentiment index rose to 111.1 in June — the highest since August 2007 — from 109.2 in May.
Asia Pacific
Unlike Europe, Asian markets climbed reflecting investor confidence in the global economic outlook after central bankers around the world signaled that interest rates may need to rise. Bank of England Governor Mark Carney indicated on Wednesday that monetary stimulus may need to be withdrawn to some extent in the future if UK wages pick up and business investment strengthens. Separately, Bank of Canada Governor Stephen Poloz told CNBC that low rates “have done their job.” The US dollar sank to one-year lows against the euro despite media reports suggesting that markets misinterpreted comments made a day earlier by ECB President Mario Draghi about adjustment in the ECB’s monetary stimulus.
The Shanghai Composite was up 0.5 percent as investors waited for the Caixin survey data on factory and service sector activity for the Chinese economy. The Hang Seng was up 1.1 percent.
The Nikkei was up 0.4 percent and the Topix added 0.6 percent as the yen held steady despite North Korea’s warning that the country would keep building up its nuclear arsenal regardless of sanctions, pressure or military attack. Investors also shrugged off weak retail sales figures. May retail sales fell 2.0 percent on the year. Advantest and Shin-Etsu Chemical gained. Toshiba was slower after the company said it had filed a $1 billion lawsuit against its joint venture partner Western Digital accusing the US company of interfering with the sale process of Toshiba’s flash memory chip unit.
The S&P/ASX added 1.1 percent while the All Ordinaries were 1.0 percent higher. Materials and financial stocks paced the gainers as commodity prices inched higher and the Federal Reserve allowed all 34 of the biggest banks in the US to ramp up their dividend payouts and buy back shares. The big four banks rose along with the Bank of Queensland and investment bank Macquarie Group. Miners BHP Billiton, Rio Tinto and Fortescue Metals Group rose along with Woodside Petroleum, Santos and Oil Search.
The Kospi was up 0.5 percent to close at a fresh record high, helped by gains in financial and tech stocks on optimism about global growth. The Sensex inched up 0.1 percent.
Looking forward
Japan releases May data for unemployment, household spending, consumer prices and industrial production. Germany reports May retail sales and June unemployment rate. France releases May consumption of manufactured goods and producer prices along with June preliminary consumer price index. The UK releases the final estimate of first quarter gross domestic product. The Eurozone releases flash harmonized index of consumer prices. Canada releases April monthly GDP and May industrial product price index. The Bank of Canada publishes its Business Outlook Survey. In the US, May personal income and spending, final June consumer sentiment and Chicago PMI.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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