On 27 June, 2017 – Stocks mostly retreated in a day of heavy FedSpeak
Technology stocks led the way downward in the US.
United States
US stocks were down after the Senate delayed the vote on its health care bill until after the July 4 holiday raising questions about the President’s domestic agenda. The weakness also followed news that the International Monetary Fund lowered its outlook for US economic growth. The Dow Jones industrials were down 0.5 percent, the S&P declined 0.8 percent and the Nasdaq dropped 1.6 percent thanks to tumbling tech shares.
Financial stocks jumped with government bond yields, while technology stocks retreated. Alphabet tumbled after EU antitrust regulators hit the tech giant with a record $2.7 billion fine. Biotechnology stocks declined. Alder BioPharmaceuticals led the biotech sector lower after releasing the results of a phase 3 trial of its migraine prevention drug. Semiconductor stocks also were lower along with internet, software, and utilities stocks.
The International Monetary Fund cut its growth forecasts for the US economy to 2.1 percent for both 2017 and 2018, dropping its assumption that President Donald Trump’s tax cut and fiscal spending plans would boost growth. The IMF, after a review of U.S. economic policy, said the Trump administration was unlikely to achieve its goal of annual GDP growth of 3 percent over a sustained period, partly because the labor market is at a level consistent with full employment.
In Fed Chair Janet Yellen’s discussion of global economic issues in London she noted that inflation has been softening. She expressed concern over inflationary expectations which have been slipping and warned that it would be a worry if they slipped further. She said productivity growth has been very slow and that real income has been stagnant for a long time. Yellen also noted, in defense of the Federal Reserve’s communication efforts, that the ongoing series of rate increases were well anticipated and that there hasn’t been any significant market reaction to the Fed’s plan to unwind its balance sheet. Ms Yellen, like others at the Federal Reserve, believes asset valuations are rich by normal standards though she noted that the Fed doesn’t target asset prices in its policy deliberations. Most of her comments were on the banking system where she still worries about systemic risks though she said the capital positions of big banks are now stronger than before.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$4.30 to US$1,249.55. Copper futures were up 0.7 percent to US$2.66. WTI spot crude was up 83 US cents to US$44.21. Dated Brent spot crude was up 81 US cents to US$46.64. The US dollar was up against the yen. However it declined against the euro, pound, Swiss franc and the Canadian and Australian dollars. The Dollar Index dropped 1.1 percent. The yield on US Treasury 30 year bond was up 6 basis points to 2.75 percent while the yield on the 10 year note was up 7 basis points to 2.20 percent.
Europe
European stocks declined Tuesday. Several factors weighed on investor sentiment including a profit warning from UK retailer Debenhams and the failed takeover of German drug-maker Stada. Automakers struggled after General Motors lowered its outlook for US new vehicle sales in 2017. The Euro strengthened against the US dollar after comments from European Central Bank President Mario Draghi. The FTSE was down 0.2 percent, the CAC declined 0.7 percent, the DAX lost 0.8 percent and the SMI was 0.5 percent lower.
ECB President Draghi said that the Bank will need to be prudent in withdrawing monetary stimulus — it can be done only gradually with the euro area still in need of considerable policy support to bring inflation back to target in a sustainable way. “In the current context where global uncertainties remain elevated, there are strong grounds for prudence in the adjustment of monetary policy parameters, even when accompanying the recovery.” Further he said: “Any adjustments to our stance have to be made gradually, and only when the improving dynamics that justify them appear sufficiently secure.”
The Bank of England plans to raise capital requirement of lenders amid consumer credit growth. It also indicated that it expects to raise the buffer by a further 0.5 percentage points at its meeting in November.
Stada declined after private equity groups Bain Capital and Cinven failed to secure enough shareholder acceptances to take over the German generic drug-maker. Deutsche Telekom was lower on a Wall Street Journal report that US wireless carrier Sprint is in exclusive talks with Charter Communications and Comcast on a potential wireless-services deal. Saint-Gobain declined on news it is increasing flat glass capacity in Mexico. Nestlé was down after surging to a near high for the year on Monday. The stock jumped at the start of the week after activist investor Daniel Loeb revealed a stake in the company. Anglo American, Rio Tinto, Antofagasta, BHP Billiton and Glencore advanced.
L’Oréal slid after it signed a pact to sell The Body Shop to Brazil’s Natura Cosméticos for €1 billion. JCDecaux was down after the company entered into a joint venture agreement with Mexican telecommunications group America Movil. Car rental company Europcar gained after saying it is conducting a thorough internal investigation over accusations of overcharging customers for repair costs. Debenhams retreated after it reported falling sales in the 15 weeks to 17 June amid volatile trading, sparking fears about a slowdown in consumer spending. Marks & Spencer Group also declined as did Next Plc. TUI declined on a broker downgrade as did William Hill.
Asia Pacific
Shares in Asia were mixed Tuesday as investors looked ahead to Federal Reserve Chair Janet Yellen’s speech later in the global market day. While a weaker yen helped exporters rise in Japan, solid industrial profits data supported underlying sentiment in China.
The Shanghai Composite was up 0.2 percent after data showed profit growth in China’s industrial sector picked up speed in May, adding to signs of stability in the economy. The Hang Seng slipped 0.1 percent.
Both the Nikkei and Topix added 0.4 percent as the US dollar hit its highest level against the yen in nearly five weeks prior to Janet Yellen’s speech. JFE Holdings and Nippon Steel & Sumitomo Metal Corp advanced on a brokerage report highlighting that steel prices are turning up after bottoming in early June. Nintendo fluctuated before closing on a flat note after the company announced it would release a SNES Classic at the end of September. Toshiba declined after delaying the release of its long-overdue earnings report.
Both the S&P/ASX and All Ordinaries were down 0.1 percent. Rio Tinto rose after the company confirmed that it would back Yancoal’s offer over Glencore for its NSW coal operations because of higher value and greater transaction certainty. Fortescue Metals Group rallied. Banks ANZ and Commonwealth gained while NAB and Westpac ended on a flat note.
The Kospi was up 0.1 percent after a report showed consumer confidence in the country rose to its highest level since 2011 in June. The Sensex lost 0.6 percent after the Reserve Bank of India asked banks to make higher provisioning on 12 large loan accounts and market participants braced themselves for the new changes and setbacks when the GST comes into force on July 1.
Looking forward
Eurozone posts May M3 money supply. In the US, May international trade in good and pending home sales index along with weekly petroleum status report will be released.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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