On 15 June, 2016 – Global stocks steadied
Most stock indices advanced in anticipation of the FOMC and Bank of Japan announcements.
United States
US stocks were higher Wednesday until the last half hour of trading when they slipped below the breakeven line and extended the losing streak to five days. The Dow Jones industrials, S&P and Nasdaq all were down 0.2 percent.
Utilities and health care stocks fell more than the rest of the market. Edwards Lifesciences declined. Whole Foods dropped after the Food and Drug Administration said there were “serious violations” at a kitchen in Massachusetts that may have resulted in contaminated food.
As expected, the Federal Reserve’s FOMC maintained its target fed funds range at 0.25 to 0.50 percent. The announcement was balanced with little change. It noted that job gains had diminished. Business investment was also a negative. On the positive side, household spending is now strengthening and the drag from net exports is now lessening. Otherwise, the text is an exact copy of the April statement. The decision was unanimous.
The Fed’s quarterly forecasts were also released showing that policy makers still see two rate increases this year but at a slower path over the next two years. Expectations for GDP growth are still centered near 2 percent but did edge lower. The outlook for inflation is improved with the PCE core seen rising slightly at a 1.7 percent midpoint.
At her press conference, in comments regarding the weak gain in the May’s employment, Jane Yellen said that one month of data is only one month of data, hinting that upward revisions to payrolls are always possible. She also cited other indications, including jobless claims and job openings, as positives. She also noted that every FOMC meeting is ‘live’ — that is, the Fed has no timetable to raise rates, that decisions will be data dependent. Although global risks were not a highlight of the conference she did say that Brexit figured in the FOMC’s discussion, including its possible consequences on both global and U.S. growth.
The Empire State manufacturing survey was up for the third month in four. However, industrial production gave back a major portion of the previous month’s gain. May output was down 0.4 percent after increasing a revised 0.6 percent in April.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$3.85 to US$1,283.30. Copper futures were up 2.2 percent to US$2.09. WTI spot crude was down US$1.03 to US$47.46. Dated Brent spot crude was down US$1.24 to US$48.59. The US dollar was down against the yen, euro, pound, Swiss franc and the Australian dollar. However, it declined against the Canadian dollar. The Dollar Index was down 0.3 percent. The yield on US Treasury 30 year bond was down 2 basis points to 2.41 percent while the yield on the 10 year note declined 4 basis points to 1.58 percent.
Europe
Stocks rebounded from heavy losses as bargain hunters stepped in and risk appetite increased prior to the FOMC monetary policy announcement after markets here closed for the day. The FTSE was up 0.7 percent, the CAC gained 1.0 percent, the DAX advanced 0.9 percent and the SMI added 0.5 percent. Investors were encouraged by the positive performance of the Asian markets. Traders said the likelihood that the Federal Reserve would keep interest rates unchanged had also helped to support stock markets, as lower rates reduce investors’ returns on bonds and their appeal compared to stocks.
The “Brexit” issue remains an uncertainty prior to the June 23 referendum. However, anxiety over the issue eased slightly after George Osborne warned that tax increases and spending cuts would be necessary if the UK elects to exit the European Union.
E.ON and RWE climbed along with ThyssenKrupp and Salzgitter. Automakers Daimler, BMW and Volkswagen were higher on the day. In Paris, Schneider Electric jumped after UK engineering software developer Aveva terminated a second round of merger talks with the company. Shares of Aveva sank. Zodiac Aerospace soared after reaffirming its financial targets for 2015/16. In London, Berkeley Group Holdings dropped after both its revenue and pretax profit fell in its recent financial year. Rival Taylor Wimpey also tumbled. Miners including Glencore, Antofagasta, Anglo American, BHP Billiton and Rio Tinto advanced.
April Eurozone merchandise trade surplus increased as growth in exports outpaced the increase in imports. On the month, exports were up a seasonally adjusted 4.9 percent and imports climbed 2.6 percent. UK unemployment reached its lowest level in more than a decade and the employment rate hit a record high, suggesting that the labor market remains solid despite the uncertainty stemming from the June 23 referendum on the country’s EU membership. The ILO jobless rate was 5 percent in the three months to April.
Asia Pacific
Asian stocks steadied Wednesday even though investors remained cautious before the FOMC and Bank of Japan’s decisions. The IEA’s statement that oil markets will be almost balanced next year soothed investor worries about the outlook for oil. Investors ignored the MSCI decision delaying the inclusion of mainland-listed Chinese A shares in its emerging market index for another year citing concerns about market access and capital mobility.
The Shanghai Composite added 1.6 percent while the yuan hit a more than five-year low against the US dollar on concerns that capital outflows may accelerate. The Hang Seng added 0.4 percent.
The Nikkei added 0.4 percent as the yen slightly weakened against its rivals prior to Federal Reserve and Bank of Japan monetary-policy. Exporters including Canon, Honda Motor, Nissan, Mazda, Sony, Toyota, Toshiba and Panasonic advanced thanks to the weaker yen. SoftBank Group was up after Alibaba Group Holding said its revenue growth would accelerate this fiscal year.
The S&P/ASX dropped 1.1 percent and the All Ordinaries lost 1.0 percent as commodity prices eased and consumer confidence index fell slightly in June after an 8.5 percent jump in May thanks to enthusiasm over the interest rate cut from the Reserve Bank of Australia. The big four banks retreated on Brexit worries and amid caution ahead of the Fed’s interest rate decision. BHP Billiton and Rio Tinto declined along with copper and iron ore prices on demand worries. Meanwhile, Rio Tinto said that it would purchase a total of A$1.75 billion of 2018 capital notes as part of its debt reduction plan.
The Kospi slipped 0.2 percent. The index was down for a fifth day as Brexit worries, anxiety ahead of central bank meetings and uncertainties surrounding the inclusion of Chinese shares into the MSCI index, prompted foreign investors to offload shares for the fourth consecutive session.
Global Stock Markets
Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
The Bank of Japan announces its monetary policy decision. Australia releases its labour force survey for May. The Swiss National Bank publishes its monetary policy assessment. The UK releases May retail sales and the Eurozone posts final May harmonized index of consumer prices. The Bank of England publishes its monetary policy decision and minutes. In the US, May consumer prices, June Philadelphia Fed business outlook survey, first quarter current account and weekly jobless claims, money supply and Fed balance sheet will be released.
*Note — all releases are listed in local time.
Source: Fidelity
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