On 25 May, 2016 – A global rally in stock markets
Easing concerns about Brexit and a softer yen eased investor concerns.
United States
US stocks continued to rally Wednesday led by energy companies, banks, mining and chemicals companies. The Dow Jones industrials were up 0.8 percent while both the S&P and Nasdaq added 0.7 percent.
Both HP Enterprise and Computer Sciences jumped. HP Enterprise said it would sell its business service unit to Computer Sciences for $8.5 billion. HP Enterprise, which was formed when Hewlett-Packard split in two last year, will focus on selling tech products to big organizations such as hardware and software for data centers. Energy companies including Chevron and Schlumberger advanced on rising oil prices. Bayer said it was committed to completing its acquisition of Monsanto. Monsanto gained after it rejected a $62 billion offer from Bayer but said Tuesday that it was open to talks. Bayer’s offer valued Monsanto at $122 a share.
Monsanto’s gains helped take chemical and metals companies higher. Shares of the chemicals maker LyondellBasell Industries and gold and copper miner Freeport-McMoRan also rallied. Wells Fargo, Citigroup, Bank of America and JPMorgan Chase gained. Intuit, the maker of TurboTax and QuickBooks, retreated despite strong results in the fiscal third quarter. Express declined after it reported disappointing results and gave weak projections for the rest of the year. Tiffany slid after it said customers cut spending in its latest quarter and the strong dollar was hurting its international sales. Alibaba was down after it said US regulators were investigating its accounting practices. Alibaba said the Securities and Exchange Commission had asked for documents and information related to its consolidated earnings and other items.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$16.25 to US$1,220.60. Copper futures were up 1.8 percent to US$2.10. WTI spot crude was up US$1.08 to US$49.70. Dated Brent spot crude was up US$1.27 to US$49.88. The US dollar was down against the euro, pound, Swiss franc and the Canadian and Australian dollars. However, it advanced against the yen. The Dollar Index was down 0.3 percent. The yield on US Treasury 30 year bond was up 3 basis points to 2.67 percent while the yield on the 10 year note was up 1 basis point to 1.87 percent.
Europe
Stocks advanced after Greece received approval for new loans. A strong May German Ifo business survey bolstered investor confidence as well. Polls indicating that the UK will remain in the EU also eased investor fears. The FTSE was up 0.7 percent, the CAC gained 1.1 percent, the DAX added 1.5 percent and the SMI was 0.5 percent higher.
The Greek government and its creditors seem to have reached a broad agreement that should pave the way for the disbursement of €10.3 billion of funds needed to avoid near-term default. In addition to the new bailout money, there will be phased debt relief in two years’ time, a key demand of Athens and a strict condition of continued IMF involvement.
Banks including Deutsche Bank, Commerzbank, Société Générale, Crédit Agricole and BNP Paribas advanced. Utility E.ON and RWE were up. Daimler, BMW, Volkswagen, Peugeot and Renault also increased on the day. In London, Marks & Spencer retreated after the retailer warned its turnaround plans for its struggling clothing business will hit short-term profits. SABMiller gained after European regulators approved AB InBev’s acquisition of rival brewer. Royal Bank of Scotland, Standard Chartered, Barclays, HSBC and Lloyds Banking Group advanced on the day.
May’s German Ifo business climate indicator climbed to 107.7 from a revised 106.7 in April. This was the highest reading since December 2015. Companies were more satisfied with their current situation and turned noticeably optimistic regarding months ahead despite “Brexit” fears.
Asia Pacific
Most stock indices were up Wednesday. Investor sentiment was buoyed by gains in oil prices, easing Brexit worries and news of a “major breakthrough” in talks between Eurozone finance ministers and Greece to unlock €10.3 billion in new bailout loans.
The Shanghai Composite was down 0.2 percent on worries about fresh capital outflows after the yuan dropped to a fresh 10-week low against the US dollar on fears of a possible US interest rate increase in June (or July). The Hang Seng added 2.7 percent.
The Nikkei rallied 1.6 percent thanks to a weaker yen and hopes that the government would delay an April sales tax increase. Exporters Canon, Nissan Motor, Honda, Panasonic and Toshiba gained. Fast Retailing, Fanuc and Softbank advanced. Sony jumped despite forecasting weaker than expected profit growth this year.
Both the S&P/ASX and All Ordinaries rebounded 1.5 percent and 1.4 percent respectively from a two week low as robust US housing data boosted commodity prices and the Reserve Bank of Australia flagged further rate cuts. Investors shrugged off weak data, which showed activity in Australia’s construction sector has fallen for the third quarter in succession. Miners and banks advanced. Wesfarmers was lower after the conglomerate, which owns supermarket giant Coles, warned of non-cash impairment charges of up to A$2.15 billion in its 2016 full-year profit result.
The Kospi added 1.2 percent amid buying by foreign and institutional investors. The Sensex jumped 2.3 percent as Brexit concerns eased and Eurozone finance ministers approved in principle a reform package for Greece that will unblock new loans.
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*
Italy posts March retail sales. The UK reports the second estimate of first quarter gross domestic product. In the US, April durable goods orders and pending home sales index along with the weekly EIA natural gas report, money supply and Fed balance sheet will be released.
Source: Fidelity
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