On 17 February, 2016 – US stocks advance for third day

Stocks in Asia were mixed while those in Europe and the US rallied along with oil prices. 

United States

Stocks gained Wednesday thanks to a surprise jump in industrial output and a recovery in the price of oil. Both the Dow Jones Industrials and the S&P were up 1.6 percent and the Nasdaq was 2.2 percent higher. Energy and technology companies posted some of the biggest increases.

Chevron and Hess gained. Microsoft and Facebook also increased. Priceline climbed after its profit and revenue surpassed estimates. Recent results from Expedia and TripAdvisor also lifted those stocks. Personal navigation device maker Garmin rose after its fourth quarter profit topped estimates. Watch and accessories maker the Fossil Group posted profit and revenue that were far better than expected and its annual profit guidance also pleased investors. Devon Energy tumbled after the company said it would eliminate 20 percent of its staff in the first quarter and cut its spending and its quarterly dividend in response to the diminished price of oil. TransUnion gained after its fourth-quarter results were better than expected and its outlook for 2016 was stronger than anticipated.

The price of oil recovered as investors again hoped for an international deal that would cap or cut production. Several OPEC nations were in talks about a freeze, but Iran said Wednesday that it would not stop increasing its exports. On Tuesday, Russia and Saudi Arabia agreed to keep oil production at January’s levels, but the deal will only take effect if other OPEC nations agree.

US January industrial output jumped 0.9 percent while manufacturing added 0.5 percent. The data suggested that American manufacturing may be recovering from its struggles of last year. While the strong dollar and weak overseas growth have cut into exports and corporate profits, Americans are spending at a solid pace.

The Federal Reserve published the minutes of its January FOMC meeting. At that time, the FOMC maintained its fed funds rate target of 0.25 percent to 0.50 percent. Many FOMC members said they saw increasing risks facing the U.S. economy as they assessed the impact of the market turmoil that has erupted in 2016 amid plunging commodity prices and confusion over China’s currency policies. Minutes showed that committee members were wary of rushing to premature conclusions about the implications of the month’s financial turbulence, but most agreed that the outlook had become more clouded and uncertain. Several argued that it would be “prudent” to wait for more evidence about the underlying strength of the economy and inflation before embarking on any further interest rate increases. Furthermore they said that if the slide in shares, high dollar and tighter financing costs persisted, the effects “may be roughly equivalent to those from further firming in monetary policy.”

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up 50 US cents to US$1,210.00. Copper futures were up 0.8 percent to US$2.07. WTI spot crude was up US$1.59 to US$30.63. Dated Brent spot crude was up US$2.11 to US$34.29. The US dollar was up against the euro and the Swiss franc. It was unchanged against the yen and pound. It declined against the Canadian and Australian dollars. The Dollar Index was down 0.1 percent. The yields on both the US Treasury 30 year bond and 10 year note were up 3 basis points to 2.68 and 1.81 percent respectively.

Europe

European stock reversed course and rallied after Tuesday’s retreat. A recovery in oil prices sparked gains in energy stocks, as well as in mining and resource stocks. Automakers and banks also took part in the broad based rally. Meanwhile, utilities were under pressure after RWE suspended its dividend payment. The FTSE jumped 2.9 percent, the CAC gained 3.0 percent, the DAX advanced 2.7 percent and the SMI added 1.7 percent.

RWE plunged after the utility suspended dividend payments for fiscal 2015 on its common shares, citing write downs and impairments on its German and British power stations. E.ON also was lower. Automakers Volkswagen, Daimler, BMW, Renault and Peugeot advanced. Banks including Deutsche Bank and Commerzbank were higher. Crédit Agricole soared after the lender confirmed plans to simplify its ownership structure after posting higher profit in its fourth quarter. Schneider Electric advanced after it raised its dividend and announced plans to extend its share buyback after reporting profit that beat analyst estimates.

Both Technip and Total finished higher. In London, Glencore jumped 14.76 percent as the mining and commodities firm said it has signed a new revolving credit facility to refinance and replace the existing $8.45 billion facility. Glencore touched its highest level since November, although the volatile stock has lost around two-thirds of its value since May. Traders said the firm's early refinancing of some of its debt was supporting the stock. The debt had been under close watch as falling commodity prices put a strain on balance sheets. J Sainsbury gained on a broker upgrade. Tullow Oil, BP and Royal Dutch Shell also finished higher. Anglo American advanced, extending a rise from the previous session.

UK January claimant count unemployment dropped 14,800, reducing the unemployment rate by this measure to 2.2 percent. The ILO measure of the unemployment rate for the three months through December was unchanged at 5.1 percent.

Asia Pacific

Shares were mixed Wednesday. The Shanghai Composite was up 1.1 percent on hopes for more stimulus after media reports suggested that the National Development and Reform Commission plans to offer 400 billion yuan ($61 billion) this quarter to fund local government's infrastructure projects. The Hang Seng retreated 1.0 percent on profit taking following two solid sessions of gains.

The Nikkei was down 1.4 percent as the yen strengthened and data showed core machinery orders were up less than expected in December after November's steep decline. The yen and safe haven bonds got an instant boost after an early rally in oil prices fizzled out on Tuesday and data showed bad loans at Chinese banks jumped 7 percent in the fourth quarter. Exporters Panasonic, Mazda Motor and Toyota Motor were lower. Toshiba dropped after the Sony spin-off Vaio announced that it plans to merge with the computer divisions of its rivals as early as next month. Softbank climbed, extending Tuesday's rally after unveiling a $4.4 billion share buyback.

The S&P/ASX declined 0.6 percent and the All Ordinaries was 0.5 percent lower. Miner Arrium plummeted after posting a huge loss in the first half of the year. BHP Billiton and Rio Tinto also declined. Woodside Petroleum slumped after reporting its worst profit drop in 13 years. Santos and Oil Search declined after oil prices erased early gains to end sharply lower on Tuesday. Banks were mixed.

The Kospi was 0.2 percent lower on profit taking. The Sensex however, added 0.8 percent. The Sensex fell as much as 270 points in early trading after Asian shares succumbed to profit taking following two days of solid gains and the rupee fell to near record lows against the US dollar. But with European shares resuming their recovery, the Sensex reversed course to end the session in positive territory.

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 releases its January merchandise trade data. Australia posts its labour force survey for January. China releases consumer and producer price indices for January. The European Central Bank publishes minutes from its last governing council meeting. In the US, the Philadelphia Fed business outlook survey for February along with the weekly jobless claims, natural gas and petroleum status reports and the Fed balance sheet and money supply will be reported.

*Note — all releases are listed in local time.