On 18 July, 2016 – Global stocks mixed
US Dow Jones industrials and S&P closed at record highs.
United States
US stocks finished higher to begin the new week. Technology stocks led the way. The Dow was up 0.1 percent, the S&P added 0.2 percent and the Nasdaq was 0.5 percent higher.
This past weekend’s attempted coup in Turkey, which began after most stock markets closed for trading on Friday, initially jolted the currency markets. But when stock markets around the world got their first opportunity for trading since the attempt, they largely held steady, and the Turkish lira recovered some of its steep losses. The coup attempt was quickly halted. In addition, economic reports around the world have come in better than analysts expected.
Technology stocks rallied after the Japanese tech company SoftBank said it is buying ARM Holdings of Britain for $32 billion in the first big acquisition announced since Britain voted to leave the European Union. ARM’s United States-listed shares soared. Apple advanced.
Financial stocks rose after Bank of America reported earnings that were better than expected. Banks have struggled with low interest rates, which limit the profits they can make from making loans. Bank of America nevertheless reported a smaller decline in earnings than forecast, in part because of higher trading revenue and cost cuts. Hasbro declined after the company reported better-than-expected overall quarterly earnings, but revenue growth for its boys’ toy unit was slower than expected. The unit produces 40 percent of the company’s total revenue.
After markets here closed, International Business Machines Corp reported a 2.8 percent fall in quarterly revenue as gains in cloud and mobile computing units failed to offset declines in its traditional business. Revenue dropped to $20.24 billion for the quarter ended June 30 from $20.81 billion a year earlier. Net income fell to $2.50 billion or $2.61 per share from $3.45 billion or $3.50 per share.
Netflix’s US and international subscription additions in the second quarter fell short of expectations as price increases for its video streaming service put off customers. The company said it added 1.52 million subscribers in its international markets, compared with the average analyst estimate of 2.1 million. Total streaming revenue rose to $1.97 billion in the second quarter from $1.48 billion a year earlier.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$7.70 to US$1,334.70. Copper futures were up 0.3 percent to US$2.24. WTI spot crude was down 68 US cents to US$45.27. Dated Brent spot crude was down 61 US cents to US$47.00. The US dollar was up against the yen and the Canadian dollar. However, it declined against the pound. The Australian dollar, euro and Swiss franc were virtually unchanged. The Dollar Index was also virtually unchanged. The yield on US Treasury 30 year bond was up 3 basis points to 2.30 percent while the yield on the 10 year note was up 4 basis points to 1.59 percent.
Europe
European stock markets were mixed when they closed Monday. Earlier in the day, gains were driven by the takeover of British chip maker ARM Holdings and the failed coup attempt in Turkey. However, the markets reversed after Bank of England monetary policy committee member Martin Weale said there is little urgency to cut interest rates. The FTSE was up 0.4 percent and the SMI edged up 0.1 percent. The CAC slipped 0.3 percent while the DAX was virtually unchanged (down 3.77 points).
The uncertainty from “Brexit” suggests waiting for firmer evidence before taking any action according to Martin Weale. “This uncertainty points to the argument that we should wait for firmer evidence before making any policy change and least in the absence of any strong arguments for an immediate change,” Weale said in his final speech as a member of the monetary policy committee. Nonetheless, the short-term impact on demand will be more severe than that on supply, dampening inflation, he said. Weale today rejected the argument that markets would be disappointed were there to be no easing in August. The bank “is not a nurse to markets.” He reminded that the MPC sets policy each month, not in advance.
Bundesbank proposed to give more powers to the European Stability Mechanism and also to alter the current terms of government bond contracts. In its monthly report the Bundesbank said the ESM, the permanent bailout fund should be given power to overview government budgets, debt sustainability and financial needs of a country seeking financial assistance. The Bundesbank also recommended to include a term into government bond contract that automatically extend the maturities of newly issued bonds for the duration of an assistance program without triggering a credit event.
Kion Group advanced after reporting an increase in its second quarter profit and backing its full-year outlook. In London, ARM Holdings soared after Japan’s SoftBank Group agreed to buy the chip designer for £24.3 billion. Thomas Cook and TUI tumbled on concerns that the fallout from this weekend’s Turkish coup will hurt the country’s consumers and companies in the tourism field. Roche declined in Zurich after Genentech announced that the Phase III GOYA study of Gazyva plus CHOP chemotherapy in people with previously untreated diffuse large B-cell lymphoma did not meet its primary endpoint.
Asia Pacific
Asian stocks were mixed Monday in thin volumes thanks to a failed coup attempt in Turkey and the Marine Day public holiday in Japan.
The Shanghai Composite declined 0.4 percent after data showed average housing prices in China rose at a slower pace in June from the previous month. The Hang Seng added 0.7 percent. Ratings agency Standard & Poor’s raised China’s annual growth forecasts for 2016 and 2017 despite warning that the economy remains on an “unsustainable” path.
Both the S&P/ASX and All Ordinaries added 0.5 percent. The big four banks gained. Retailer Woolworths, Wesfarmers and JB Hi-Fi advanced. Gold miner Evolution Mining and Regis Resources were higher. However, Fortescue Metals Group, Sandfire Resources and Mineral Resources retreated after base metal prices fell over the weekend.
The Kospi was up 0.2 percent as foreign investors extended their buying streak. The Sensex retreated 0.3 percent with losses in rupee weighing on sentiment, as the monsoon session of Parliament began amid hopes the government will push through major reforms such as the Goods and Services Tax (GST) Bill. Meanwhile, RBI Governor Raghuram Rajan today said the current level of the rupee is “pretty reasonable” and any attempt to devalue it may lead to a surge in inflationary pressures and “offset any benefits”.
Looking forward
The Reserve Bank of Australia publishes minutes from its latest monetary policy meeting. The UK releases June consumer and producer price indices. Germany posts July ZEW survey. In the US, June housing starts are released.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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