On 16 August, 2016 – Stocks retreated globally
Investors took profits after recent gains and investors focused once again on the Federal Reserve.
United States
US stocks retreated from Monday’s record highs — investors worried about the possibility of a Federal Reserve interest rate hike possibly as soon as the September meeting after officials made hawkish comments despite anemic inflation data. Federal Reserve Bank of New York President William Dudley indicated that the US economy has evolved into a shape that could justify a rate increase as early as next month. Both the Dow Jones industrials and S&P were down 0.5 percent and the Nasdaq lost 0.7 percent. Rate-sensitive telecom and utilities stocks were particularly weak, while energy shares were higher on surging oil prices.
In corporate news, Apple plans to increase its investment in China and also set up its first Asia-Pacific research and development center in the country. Warren Buffett has increased his stake in Apple. Home Depot said same store sales were up 5.4 percent in the second quarter. The industrial-gas company Praxair advanced after reports that it was in talks with Linde of Germany about a possible deal. Hain Celestial Group tumbled after it delayed its quarterly report because of accounting issues and said it does not expect to reach its financial projections for the year.
Coty declined after it posted results that surpassed expectations, but it said little about its purchase of Procter & Gamble’s beauty business, a $15 billion deal expected to close in the next few months. Coty said it was “premature” to comment on how the combined business will do. TJX retreated after it forecast a disappointing third-quarter profit. The retailer said higher wages and the strong dollar would hurt its results. The company had reported solid quarterly results and raised its estimates for the full year. American International Group said it would sell its United Guaranty mortgage insurance unit to Arch Capital for $3.4 billion in cash and stock.
July consumer prices were flat on the month thanks to tumbling gasoline prices. Core inflation, which excludes food and fuel prices, inched up just 0.1 percent for the month. Overall, inflation is up just 0.8 percent from a year ago and far below the 2 percent target set by the Federal Reserve. July housing starts rose to a 5-month high in July amid exceedingly low interest rates. Housing starts last month were up 2.1 percent on the month to an annualized rate of 1.211 million. July industrial production increased a better than anticipated 0.7 percent.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$4.60 to US$1,344.00. Copper futures were up 1.9 percent to US$2.18. WTI spot crude was up 85 US cents to US$46.59. Dated Brent spot crude was up 86 US cents to US$49.21. The US dollar was down against the euro, pound, Swiss franc and the Canadian and Australian dollars. However, it was unchanged against the yen. The Dollar Index was up down 1.0 percent. The yields on both the US Treasury 30 year bond and the 10 year note were both up 1 basis point to 2.29 percent and 1.57 percent respectively.
Europe
European stocks retreated Tuesday from their highest level in seven weeks. The move was largely attributed to profit taking following the recent run up in shares. The strong performance of the mining stocks helped to limit the downside move. The FTSE was down 0.7 percent, the CAC declined 0.8 percent, the DAX was 0.6 percent lower and the SMI lost 1.1 percent.
Linde jumped on a report that US industrial gas supplier Praxair has held merger talks with its German peer to create the world’s largest supplier of industrial gases. French rival Air Liquide also gained. Deutsche EuroShop was lower after its first-half consolidated profit declined 2.0 percent from last year. A stronger euro weighed on automakers with Daimler, BMW, Renault and Peugeot all declining. Volkswagen retreated as the company and US prosecutors negotiate a settlement to resolve a criminal probe into the automaker’s diesel emissions scandal according to the Wall Street Journal. In Paris, Technip climbed after the firm announced that their 50/50 owned affiliate TechDof Brasil has chartered out a pipe-lay support vessel to Petrobras.
In London, Antofagasta soared after reaffirming its expectations for higher output this year. BHP Billiton advanced despite reporting its worst-ever annual loss. Cairn Energy gained after its first-half loss narrowed from last year on lower expenses. Elevator manufacturer Schindler dropped in Zurich after cutting its revenue outlook for 2016, citing increasing uncertainty in the Chinese construction market and the recession in Brazil.
UK consumer inflation hit its highest level in nearly two years while the ZEW Institute’s economic sentiment indicator for Germany partly recovered from the Brexit shock in July. Germany’s investor sentiment partly recovered in August from a ‘Brexit’-driven fall in the previous month despite the persistence of political and financial sector concerns. The ZEW Indicator of Economic Sentiment climbed to 0.5 from minus 6.8 in July. UK inflation reached a 20-month high in July and factory gate prices increased for the first time since mid-2014 as weak sterling after the Brexit vote pushed import prices higher. July consumer prices climbed 0.6 percent on the year.
Asia Pacific
Stocks in this region also retreated Tuesday even though US stock indices hit record highs again and oil prices continued to climb.
The Shanghai Composite was down 0.5 percent after reaching a seven-month high on Monday as PBoC easing hopes faded. Investors waited for the details of a new trading link between Shenzhen and Hong Kong. The Hang Seng slipped 0.1 percent. China’s premier Li Keqiang said the State Council had approved the launch of the Shenzhen-Hong Kong Stock Connect program linking the two exchanges but without giving further details on the launch date.
The S&P/ASX and All Ordinaries both slipped 0.1 percent. The minutes from the RBA’s August board meeting suggested that there is room for stronger growth, which could be assisted by lower interest rates. The big four banks declined. BHP Billiton closed higher before releasing its full-year results after the market close. Rio Tinto and Fortescue Metals Group also advanced. Woodside Petroleum, Santos, Origin Energy and Beach Energy climbed after crude prices jumped overnight on reports that top producers from OPEC are willing to hold talks to stabilize prices.
The Nikkei declined 1.6 percent to its lowest level since August 5. Nissan Motor, Suzuki Motor, Nikon, Mazda Motor and Fast Retailing dropped. The Kospi slipped 0.1 percent while the Sensex lost 0.3 percent.
Looking forward
The UK reports July labour market data. In the US, the Federal Reserve publishes minutes from its meeting held on July 27. Weekly EIA petroleum status report will be released.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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