On 17 August, 2017 – Shares mostly reversed Wednesday’s direction and declined on Thursday

Both political events and disappointing earnings dented investors’ risk appetite.
United States
Stocks moved sharply lower Thursday with the major averages ending at the worst levels of the day. The broad based weakness reflected concerns about ongoing political turmoil in Washington, D.C. and the van attack in Barcelona, Spain. Traders also reacted negatively to the latest batch of earnings with Wal-Mart and Cisco Systems moving lower after reporting their quarterly results. The Dow Jones industrials were down 1.2 percent, the S&P lost 1.5 percent and the Nasdaq retreated 1.9 percent.
Several important pieces of economic news were released before the stock market opened. Weekly jobless claims dropped 12,000 to 232,000. The August Philadelphia Fed manufacturing index edged down to 18.9 from 19.5 in July, although a positive reading still indicates growth in regional manufacturing activity. July industrial production edged up 0.2 percent after climbing by 0.4 percent in June.
Airline stocks including Delta, American and United Continental declined. Considerable weakness was also visible among computer hardware. NetApp led the sector lower after providing disappointing guidance. Semiconductor, steel, railroad and telecom stocks also declined.
Gap reported better than expected same store sales for the second quarter, helped by strong demand for Old Navy products, fewer discounts and the company’s efforts to better manage inventory. The company also said its quarterly net income more than doubled and it raised its full-year earnings forecast. Net income rose to $271 million from $125 million. After markets closed, Applied Materials reported a better-than-expected quarterly profit helped by strong growth in its semiconductor business. Revenue from its semiconductor business, the company’s largest, rose 41.8 percent to $2.53 billion.
Robert Kaplan, president of the Federal Reserve Bank of Dallas and voting member of the FOMC, said he is being patient about another interest rate rise as inflation remains subdued. Mr Kaplan said he would like to see more progress in inflation reaching the Fed’s 2 percent target “before I consider another rate increase”, adding, “I’m being patient in terms of another rate increase”. Mr Kaplan’s remarks follow similar comments made by Minneapolis Fed president Neel Kashkari also a voting member of the FOMC and James Bullard a non-voting member. New York Fed president William Dudley has said he favors another rate rise this year if the economy evolves as he expects. And the minutes of the Fed’s July monetary policy meeting showed officials are divided over what low inflation should mean for the outlook for interest rates.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$12.40 to US$1,285.15. Copper futures were down 1.6 percent to US$2.91. WTI spot crude was up 25 US cents to US$47.03. Dated Brent spot crude was up 65 US cents to US$50.92. The US dollar was up against the euro, pound and the Canadian and Australian dollars. It was down against the Swiss franc and yen. The Dollar Index was up 0.15 percent. The yields on both the US Treasury 30 year bond and 10 year note were down 4 basis points to 2.78 percent and 2.19 percent respectively.
Europe
European shares retreated Thursday after three days of gains. Investors here had their first opportunity to react to the FOMC minutes that were released after European closed yesterday. Financial stocks were under pressure as investors have become doubtful about the Fed’s ability to raise interest rates one more time this year after some members revealed that they want to be “patient” on raising interest rates. The FTSE and CAC were down 0.6 percent, the DAX declined 0.5 percent and the SMI dropped 1.0 percent.
The European Central Bank released minutes of its most recent governing council meeting that was held on July 20. Members raised concern over the appreciation of the euro, pointing out the risk of the exchange rate overshooting in the future and stressed that the favorable financing conditions are still supported by the massive stimulus.
Deutsche Bank, Commerzbank, Crédit Agricole, BNP Paribas and Société Générale finished lower. In London, Standard Chartered, Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC all retreated. Kingfisher tumbled after the home improvement group reiterated its cautious outlook for its second half after reporting another decline in quarterly sales. Hikma Pharmaceuticals sank after the drug-maker lowered its fiscal 2017 outlook for group revenues.
June euro area trade surplus increased to a 6-month high as imports declined more than exports; the trade surplus rose to a seasonally adjusted €22.3 billion from €19 billion in May. This was the highest surplus seen so far this year. July Eurozone inflation remained stable as initially estimated in July, rising 1.3 percent on the year. Second quarter French unemployment declined to 9.2 percent from 9.3 percent. July retail sales volumes were up a monthly 0.3 percent.
Asia Pacific
Stocks in the Asia Pacific region were mixed on Thursday. The US dollar weakened slightly amid political turmoil in Washington DC and after the latest Federal Reserve FOMC meeting minutes indicated that members were concerned about weakening inflation.
The Shanghai Composite was up 0.7 percent after reports that the government is considering significant changes to open up the economy more widely to foreign investors. The Hang Seng retreated 0.2 percent.
Both the Nikkei and Topix lost 0.1 percent as the yen strengthened on doubts about U.S. administration’s ability to implement reforms. Japanese exports rose for an eighth straight month in July amid strong demand from China helped limit the downside. The indices were dragged down by automakers, financials and energy majors. Seibu Holdings jumped on news that US private equity firm Cerberus Group has disposed of its remaining 2.35 percent stake in the company.
Both the S&P/ASX and All Ordinaries slipped 0.1 percent as investors digested a slew of earnings releases. Telstra retreated after it slashed its dividend outlook after reporting a 33 percent drop in full-year profit. QBE Insurance Group tumbled after its overall payout ratio worsened due to a claims blowout in its emerging markets unit. BHP Billiton and Rio Tinto closed higher. Treasury Wine Estates rallied on the day. Wesfarmers gained after posting encouraging full-year results.
The Kospi was up 0.6 percent amid buying by foreign and retail investors. The Sensex inched up 0.1 percent after the latest Federal Reserve meeting minutes showed concern about inflation remaining persistently low and Infosys proposed to consider a share buyback.
Looking forward
Germany posts July producer price index. Canada reports July consumer price index. In the US, preliminary consumer sentiment is released.
Global Stock Markets

*Note — all releases are listed in local time.

Source: Fidelity

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