On 27 July, 2016 – The Federal Reserve left its monetary policy unchanged
Stock indices were mixed both before and after the announcement.
United States
United States markets were mixed as gains in technology stocks such as Apple were offset by declines in consumer staples stocks including Coca-Cola. Energy companies slid along with oil prices. The Fed did not make any changes to interest rates but left the door open for increases later this year. The Dow Jones industrials were virtually unchanged, the S&P slipped 0.1 percent but the Nasdaq added 0.6 percent.
Apple advanced after reporting earning after markets closed on Tuesday. Twitter dropped after the company reported another loss and user growth continued to slow. Coca-Cola declined after the company trimmed its sales outlook for the year pointing to weak demand in China and other international markets. Coke has faced headwinds in the United States and internationally as more consumers move away from sugary drinks. Facebook’s quarterly revenue jumped 59.2 percent as it attracted new advertisers and encouraged existing ones to spend more. The net income attributable to Facebook’s stockholders rose to $2.05 billion or 71 cents per share in the second quarter ended June 30 from $715 million or 25 cents per share a year earlier. Revenue rose to $6.44 billion from $4.04 billion.
The Federal Reserve left its benchmark interest rate range unchanged at 0.25 percent to 0.5 percent. It gave an upbeat assessment of economic conditions that suggested a growing chance of a rate increase later this year. In its statement, the Fed said that the economy had overcome wobbles this year and that job creation had increased amid moderate economic growth. It said that near term risks have diminished. There was one dissent — Esther George, president of the Federal Reserve Bank of Kansas City, voted for a 0.25 percent increase in the Fed’s benchmark rate. Interestingly, the Fed did not mention Brexit in its statement in contrast to its pre-vote statement in June.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$6.00 to US$1,329.00. Copper futures were down 1.6 percent to US$2.19. WTI spot crude was down 91 US cents to US$42.01. Dated Brent spot crude was down US$1.36 to US$43.51. The US dollar was up against the yen and Australian dollar. It was down against the euro, pound and Swiss franc. However, it was unchanged against the Canadian dollar. The Dollar Index was up 0.5 percent. The yields on both the US Treasury 30 year bond and 10 year note were down 6 basis points to 2.22 percent and 1.50 percent respectively.
Europe
European indices mostly advanced after struggling earlier this week. Upbeat British growth data and a number of strong corporate financial reports overshadowed weak German consumer confidence data. Hopes for further stimulus measures from the Bank of Japan later this week also contributed to the positive mood among investors. However, investors were cautious before the FOMC announcement which would be published after markets here closed for the day. Japanese Prime Minister Shinzo Abe on Wednesday said his government is set to unveil a stimulus package of more than ¥28 trillion to boost the sluggish Japanese economy. The FTSE was up 0.4 percent, the CAC jumped 1.2 percent, the DAX added 0.7 percent but the SMI slipped 0.1 percent.
Bayer gained after the company increased its growth forecasts for the year after reporting an 18.6 percent rise in second-quarter net profit. BASF retreated after its second quarter net income declined by €173 million to €1.092 billion thanks to lower oil and gas prices. Deutsche Bank tumbled as its second quarter net income plunged to €20 million from €818 million last year amid low interest rates and volatile markets. In Paris, luxury-goods maker LVMH Moët Hennessy Louis Vuitton and car maker Peugeot jumped after solid first-half results. Airbus Group was higher after its second quarter profits exceeded expectations despite new impairments on two of its biggest airplane programs. In London, homebuilder Taylor Wimpey surged after reporting a 12 percent increase in first-half pre-tax profit. Oil & exploration firm Tullow Oil climbed after it swung to a first-half net profit.
The first estimate of UK second quarter gross domestic product was up 0.6 percent on the quarter and 2.2 percent from a year ago.
Asia Pacific
Stocks were mixed as stimulus hopes weakened the yen triggering a broad rally in Japanese markets. At the same time, Chinese shares succumbed to heavy selling pressure after sharp gains in the previous session. Investors avoided risk before the FOMC and BoJ meetings and a mixed quarterly earnings picture dampened spirits.
The Shanghai Composite retreated 1.9 percent on fears of regulatory scrutiny after Chinese President Xi Jinping reportedly called for the prevention of asset bubbles. The Hang Seng added 0.2 percent after data showed profits of China’s major industrial firms rose 5.1 percent on the year in June, bringing the annual growth for the year to date to 6.2 percent.
The Nikkei added 1.7 percent after Prime Minister Shinzo Abe said the government will draft a stimulus package worth more than ¥28 trillion to reinvigorate the flagging economy. Revived expectations for additional policy stimulus from the Bank of Japan later this week also boosted investor sentiment. Exporters Honda Motor, Panasonic and Sony gained as renewed expectations for stimulus pushed the yen sharply lower. Apple supplier Japan Display and Minebea jumped after Apple’s Q3 earnings managed to beat expectations. Shin-Etsu Chemical advanced on strong earnings results. Nintendo declined before announcing its first-quarter results.
Both the S&P/ASX and All Ordinaries were virtually unchanged after the highly-anticipated June quarter consumer price inflation report painted a mixed picture just prior to the Reserve Bank of Australia’s monetary policy meeting next week. BHP Billiton and Rio Tinto advanced after Dalian iron ore prices jumped on news of Chinese miners seeking anti-dumping probe on imports. Fortescue Metals advanced after reporting increased production at its Pilbara iron ore mines in Western Australia over the June quarter.
The Kospi slipped 0.1 percent while the Sensex was up 0.2 percent.
Looking forward
Germany releases July unemployment rate and preliminary consumer price index. The EU posts final EC economic sentiment. In the US, June international trade in goods and preliminary retail sales will be posts along with weekly jobless claims, money supply and Fed balance sheet.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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