On 16 June, 2016 – Investors remain risk averse
Stocks in Asia and Europe tumbled while those in the US managed to climb into positive territory.
United States
Stocks rallied late in the afternoon on Thursday after falling rather sharply early in the trading session ending a five-day losing streak. The rebound was partly due to bargain hunting. However, investors continued to be cautious before the June 23 vote on whether Britain will remain a member of the European Union. The Dow Jones industrials were up 0.5 percent, the S&P gained 0.3 percent and the Nasdaq added 0.2 percent. The earlier decline was partly attributed to the lack of action by the four central banks that announced policy decisions.
May consumer price index edged up 0.2 percent on the month after increasing 0.4 percent the month before. Core CPI excluding food and energy was also up 0.2 percent. Weekly jobless claims increased 13,000 from the previous week. The National Association of Home Builders’ housing market index reading improved.
Central banks were in focus globally, after four made no change to their respective interest rates. The Federal Reserve voted against raising interest rates in the wake of a dismal May jobs report. The Bank of Japan kept its monetary stimulus unchanged on Thursday, as policymakers wait to the see the full impact of the negative policy introduced early this year. The Bank of England unanimously decided to maintain the monetary policy as they wait for the outcome of the referendum on EU membership on June 23. The bank also warned on the risks from ‘Brexit’ and vowed to take whatever action needed following the referendum to bring inflation to the target over the appropriate horizon. The Swiss National Bank maintained its negative interest rate and repeated its view that the franc is still significantly overvalued.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$27.45 to US$1,310.75. Copper futures were down 1.75 percent to US$2.05. WTI spot crude was down US$2.01 to US$46.00. Dated Brent spot crude was down US$1.90 to US$47.07. The US dollar was up against the euro, Swiss franc and the Canadian and Australian dollars. However, it declined against the yen and pound. The Dollar Index was unchanged on the day. The yield on US Treasury 30 year bond was down 2 basis points to 2.39 percent while the yield on the 10 year note slipped 2 basis points to 1.57 percent.
Europe
Stocks retreated Thursday after advancing Wednesday. A continued pull back in crude oil prices and concerns over a potential “Brexit” weighed on sentiment Thursday. The FTSE was down 0.3 percent, the CAC declined 0.4 percent and the DAX and SMI each lost 0.6 percent.
Central banks were also in focus Thursday. The Federal Reserve, the Bank of Japan, the Swiss National Bank and the Bank of England all maintained their respective rates.
Automakers BMW, Daimler and Volkswagen were lower even as industry data showed Europe’s passenger car market registered strong growth in May, marking its 33rd consecutive monthly rise. RWE and E.ON declined. Banks including Deutsche Bank, Commerzbank, Crédit Agricole, Société Générale and BNP Paribas retreated. Technip declined but Total advanced.
In London, luxury handbag maker Mulberry gained after posting a three-fold jump in full-year pretax profit. Barclays, Royal Bank of Scotland, Lloyds Banking Group and Standard Chartered were lower. Gold miner Randgold Resources and Fresnillo jumped as gold prices climbed above $1,300 an ounce on a weaker dollar. UBS and Credit Suisse dropped in Zurich after the Swiss National Bank said they have to raise about 10 billion Swiss francs to meet new leverage requirements.
UK May retail sales increased a more than expected 0.9 percent after jumping 1.9 percent in April.
Asia Pacific
Stocks in Asia were lower as oil prices continued to decline and the Bank of Japan left its monetary policy unchanged. Oil prices fell for a sixth straight session after the EIA report showed a lower-than-expected drop in stockpiles. The yen rose sharply to hit multi-month highs against its counterparts.
The Shanghai Composite slid 0.5 percent as concerns about slowing economic growth and fears of further weakness in the yuan overshadowed encouraging bank lending data. China’s bank lending increased more than expected in May following a sharp fall in April according to the People’s Bank of China. Banks extended CNY 985.5 billion in new yuan loans in the month, which was above the expected level of CNY 750 billion. The Hang Seng lost 2.1 percent.
The Nikkei tumbled 3.0 percent as a stronger yen and the lack of action by the Bank of Japan dented exporters. Hitachi, Honda Motor, Mazda, Nissan, Panasonic, Sharp, Sony and Toyota Motor all retreated. Mitsui Fudosan, Inpex and SoftBank also were lower. The Wall Street Journal reported that Chinese Internet major Tencent is in talks to buy a majority of Supercell from the Japanese mobile phone company.
The S&P/ASX and All Ordinaries were virtually unchanged. The big four banks declined. Oil & gas producer Santos dropped as oil prices extended declines for a sixth straight session. A resurgent copper and a three percent rally in Chinese iron ore futures lifted miners including BHP Billiton and Fortescue Metals Group. Gold miners Newcrest, Evolution Mining and Northern Star Resources rallied as gold climbed above US$1,300 on a weaker dollar. In economic news, Australia’s unemployment rate remained 5.7 percent in May while employment climbed 17,900.
The Kospi dropped 0.9 percent with cyclical stocks bearing the brunt of institutional selling as investors braced for the short-term impact of Brexit. The Sensex lost 0.8 percent.
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*
May housing starts will be released in the US. Canada posts May consumer prices.
*Note — all releases are listed in local time.
Source: Fidelity
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