On 10 March, 2016 – Global stocks mixed
Markets were volatile after ECB moves and Draghi remarks.
United States
US stocks were little changed Thursday after a mixed bag of corporate earnings reports and another drop in crude oil prices. Stocks shrugged off fresh stimulus measures from the European Central Bank. Bond prices fell, sending yields higher. Stocks gave back early gains after enthusiasm about new European Central Bank moves to spur faster growth faded. The Dow Jones industrials slipped 5.23 points while the S&P added 0.31 point. The Nasdaq was down 0.3 percent.
The European Central Bank cut all its interest rates and expanded the scope of its bond-buying program. The moves exceeded market expectations and initially spurred demand for risky assets. Draghi said at a press briefing that risks to the euro-area growth outlook are still to the downside, and the rate of inflation will remain negative before picking up later in the year. Still, he said he doesn’t anticipate more rate cuts. In the aftermath, stocks lurched from optimism that the ECB’s moves could boost growth to concern that the bold new measures will fall short, and then back again.
Dollar General advanced after the company reported that its fourth quarter profit rose almost 6 percent as customer traffic and transaction amounts increased. Shares of the cloud storage company Box declined despite the company’s report of results that beat estimates.
US initial jobless claims, a proxy for layoffs, fell by 18,000 to 259,000 in the week ended March 5. It was the lowest level since October and underscored the improvement in the labor market.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$22.10 to US$1,266.50. Copper futures were down 0.4 percent to US$2.22. WTI spot crude was down 39 US cents to US$37.90. Dated Brent spot crude was down 90 US cents to US$40.17. The US dollar was up against the Canadian and Australian dollars. However, it declined against the yen euro, pound and the Swiss franc. The Dollar Index retreated 1.2 percent. The yield on US Treasury 30 year bond was up 3 basis points to 2.70 percent while the yield on the 10 year note was up 5 basis points to 1.93 percent.
Europe
Markets were range bound in early trading as investors awaited the European Central Bank’s monetary policy announcement. Initially markets rallied with stocks rising and the euro sinking after the stimulus package proved more extensive than expected. However, the gains were short-lived as investors took the opportunity to lock in some profits. The European markets continued to pare their gains in the afternoon, dropped into negative territory and continued to fall for the remainder of the trading session. Weakness in crude oil prices also contributed to the late day sell-off. The FTSE retreated 1.8 percent, the CAC was down 1.7 percent, the DAX lost 2.3 percent and the SMI was 1.0 percent lower. Comments from ECB Mario Draghi also had a negative impact on the market. Draghi made comments which suggested that rates have now reached a bottom.
The Governing Council voted to cut its benchmark interest rate to zero and expand its asset purchases. The bank also announced a new round of longer-term financing operations and decided to include non-bank debt in its list of eligible assets for purchases. The already-negative deposit rate was cut by 10 basis points to minus 0.40 percent. The marginal lending facility rate was reduced by five basis points to 0.25 percent. The ECB also expanded the monthly purchases under the asset purchase program by €20 billion to €80 billion starting in April. The ECB also decided to include investment grade euro-denominated bonds issued by non-bank corporations in the euro area in the list of assets that are eligible for regular purchases. The Bank also announced a new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years. These will start in June.
Volkswagen declined after its top US executive left the company to pursue other opportunities. Daimler and BMW also retreated as did Renault and Peugeot. Fertilizer maker K+S tumbled after flagging sales and earnings drop in 2016. Hugo Boss was up on news the troubled retailer plans to close stores in China as part of cost-cutting efforts. Reinsurer Hannover Re climbed after reporting a rise in FY15 profit and raising its dividend. Retailer Carrefour was down after its 2015 profit declined, hurt by restructuring charges. Aviva jumped after the insurance giant increased its dividend after delivering “highly satisfactory” results for 2015 amid a “backdrop of market volatility.”
Germany’s exports dropped unexpectedly in January suggesting that weak demand from emerging economies, especially China, weighed on foreign demand, while imports growth exceeded expectations. Exports were down 0.5 percent on the month following a 0.7 percent drop in December. Imports were up 1.2 percent after retreating 1.6 percent in December.
Asia Pacific
Shares were mixed as investors awaited the ECB announcement which would occur after markets here were closed for the day. Chinese shares fell again sharply on fading hopes of imminent stimulus measures and traders looked ahead to the ECB meeting for fresh catalysts. The safe-haven yen weakened against rivals and oil prices held steady after sharp gains overnight, helping cap losses outside China. While the Reserve Bank of New Zealand delivered a surprise cut in its official cash rate citing a weakening global outlook and tepid inflation expectations, the Bank of Korea and Malaysia’s central bank left their key interest rates unchanged as expected.
The Shanghai Composite dropped 2.0 percent after readings on consumer and producer price inflation restricted the scope for further policy easing. CPI for February rose 2.3 percent from a year earlier, a six-month high and up from January’s 1.8 percent rise as seasonal distortions boosted food prices. The producer price index dropped 4.9 percent in the month, an improvement over January’s 5.3 percent decline. The Hang Seng slipped 0.1 percent.
The Nikkei rallied 1.3 percent as a weaker yen, an overnight rally in oil prices and hopes that the ECB will deliver on stimulus supported underlying sentiment. February’s producer price index retreated 3.4 percent on the year and was down for the 11th straight month keeping the Bank of Japan under pressure to expand its monetary stimulus. Exporters Nissan Motor, Toyota Motor and Sony climbed along with Inpex and retail group Seven & i Holdings. Nippon Paper Industries jumped after a broker upgrade.
Both the S&P/ASX and All Ordinaries slipped 0.1 percent. Banks and miners ended narrowly mixed. The Kospi added 0.8 percent to reach its highest level since December 24, 2015 on hopes the European Central Bank will ease its monetary policy further later today. Earlier in the day, the Bank of Korea kept its base rate unchanged for the ninth straight month at 1.5 percent.
The Reserve Bank of New Zealand unexpectedly cut interest rates to a fresh record low of 2.25 percent and signaled further easing may be needed, saying it is concerned by a slump in inflation expectations.
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*
Germany posts its final reading for the February consumer price index. The UK reports January merchandise trade balance. India releases January industrial production. Canada reports its February labour force survey. The US releases February import/export prices.
Source: Fidelity
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