On 05 July, 2017 – Stocks were mixed thanks to geopolitical events and in anticipation of a heavy load of new economic data
Reaction was muted to the FOMC minutes released during US afternoon trading.
United States
Stocks and bonds were little changed after the publication of the minutes from the June FOMC meeting. A sharp drop in oil prices dragged the energy shares lower and weighed on the S&P and Dow Jones industrials while gains in technology stocks lifted the Nasdaq. Crude prices tumbled, hurt by a stronger US dollar and concerns about rising OPEC exports. The Dow was down 1.10 points while the S&P and Nasdaq advanced 0.15 percent and 0.7 percent respectively.
Exxon and Chevron tumbled. Advanced Micro Devices, Micron and Nvidia all advanced. O’Reilly Automotive tumbled to a near three-year low after its second-quarter same-store sales widely missed its own estimates. That move dragged down other auto-parts retailers including Autozone and Advance Auto Parts.
May new factory orders dropped more than expected 0.8 percent on the month. Nondurable orders, held down by weakness in petroleum and coal, also declined 0.8 percent as did durable orders where last week’s advance data showed a 1.1 percent decline. Core capital goods orders (nondefense ex-aircraft) were boosted by a jump in mining equipment, climbing 0.2 percent.
The Federal Reserve published the minutes of its June 13 and 14 FOMC meeting. At that time the committee voted to increase its fed funds policy interest rate range to 1.00 percent to 1.25 percent. The minutes revealed that officials were still debating how soon the Fed should begin to reduce its securities portfolio. In addition to its interest rate increase, the FOMC also published a plan for paring its massive holdings of Treasuries and mortgage-backed securities that were accumulated after the financial crisis to reduce borrowing costs for businesses and consumers.
Although the Fed has said it wants to launch the balance sheet plan this year, officials are divided between starting in September and waiting until December. The minutes of the June meeting said several officials wanted to start “within a couple of months,” while others favored waiting.
Committee members downplayed the economy’s lack of inflation calling it “transitory” and “idiosyncratic”, the latter a reference to this year’s sharp cuts in cell phone service costs and pharmaceuticals. They saw inflation reversing on wage pressures tied to continued strengthening in the labor market. The Committee was upbeat on consumer spending, noting improvement in April and predicting continued strength based on job gains and the rise in household wealth that they see ahead.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$3.45 to US$1,220.30. Copper futures were down 1.2 percent to US$2.66. WTI spot crude was down US$2.04 to US$45.03. Dated Brent spot crude was down US$1.93 to US$47.68. The US dollar was up against the Canadian and Australian dollars. The currency was unchanged against the euro, pound, Swiss franc and yen. The Dollar Index was virtually unchanged. The yields on both the US Treasury 30 year bond and 10 year note were down 2 basis points to 2.85 percent and 2.22 percent respectively.
Europe
Stock indices were mixed Wednesday as they fluctuated between small gains and losses over the course of the day. Geopolitical concerns negatively impacted investor sentiment after North Korea successfully test- launched an intercontinental ballistic missile Tuesday that experts said could hit the U.S. state of Alaska. Traders were cautious prior to the release of the Federal Reserve’s minutes for its most recent policy meeting later in the day. The FTSE, CAC and DAX each added 0.1 percent while the SMI lost 0.2 percent.
Renault declined after announcing the acquisition of a 35 percent stake in a new joint venture with Oktal. J Sainsbury increased after its first quarter same store sales climbed by 2.3 percent. Persimmon climbed after issuing a robust trading statement. Worldpay dropped after US credit card processor Vantiv agreed to buy the British payment company for £7.7 billion.
Booker Group rallied after reporting solid growth in quarterly sales. Ericsson advanced in Stockholm on news that its Chairman Leif Johansson would step down next year to complete an overhaul of top management. Volvo advanced after it said all new models launched from 2019 would have an electric motor. Nestlé and Roche retreated. Novartis declined on a broker downgrade.
Euro area composite PMI for June slipped to a four-month low of 56.3 from 56.8 in May. May retail sales in the euro area climbed a monthly 0.4 percent. The UK service sector expanded at a slower pace in June on the weakest upturn in new work since last September. The services PMI reading dropped to 53.4 from 53.8 in May.
Asia Pacific
Asian stocks reversed early losses to end mostly higher Wednesday as investors shrugged off geopolitical worries and looked ahead to the release of minutes of the Fed’s June meeting later in the global market day and the outcome of G20 summit that begins Friday in Germany.
The Nikkei was up 0.2 percent while the Topix gained 0.6 percent. The yen pared early gains and a private survey showed activity in Japan’s services sector expanded at a faster rate in June. Automakers and financials led the advances.
The Shanghai Composite climbed 0.8 percent after the announcement allowing foreign investment in the Chinese bond market. Investors shrugged off the latest survey from Caixin showing that growth in China’s services sector slowed in June. The PMI dropped to 51.6 from 52.8 in May. The Hang Seng was up 0.5 percent. The rebound Wednesday follows a selloff the previous day, when North Korea rattled investors in the region by successfully testing an intercontinental ballistic missile. June PMI in Hong Kong climbed to a reading of 51.1 from 50.5 in May.
The S&P/ASX was down 0.4 percent and the All Ordinaries lost 0.3 percent amid simmering geopolitical tensions. Investors ignored the latest survey from the Australian Industry Group, which showed that the country’s services sector expanded at a faster rate in June. The big four banks declined after sharp gains the previous day as South Australia’s Liberal Opposition vowed to block the controversial bank tax. Miners BHP Billiton, Fortescue Metals Group and Rio Tinto rallied while energy majors closed on a mixed note as crude oil futures held steady near the $47 barrel mark.
The Kospi was up 0.3 percent, rebounding from its 0.6 percent loss the previous day as South Korea and the U.S. held a joint missile drill to show their precision fire capability. The Sensex edged up 0.1 percent.
Looking forward
Australia posts May merchandise trade balance. Germany releases May manufacturing orders. In the US and Canada, international trade data for May will be released. In the US, June ADP private employment and ISM nonmanufacturing survey will be released 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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