On 05 July, 2016 – Global stocks retreated Tuesday
The pound, Treasury yields and stocks tumbled as investors shed risk.
United States
US stocks joined those in Europe and Asia and tumbled Tuesday. Bond prices rose pushing yields to record low on new concerns about Brexit. Trading was unsettled after three financial firms stopped trading in British commercial real estate funds as investors rushed to pull money out. Energy companies fell more than the rest of the market as oil prices tumbled. The Dow Jones industrials were down 0.6 percent, the S&P retreated 0.7 percent and the Nasdaq lost 0.8 percent. Investors are waiting for the start of earnings season which begins next week.
The financial group Standard Life stopped trading in a commercial property fund after a rapid increase in investors trying to liquidate their holdings. That spurred a sharp drop in real estate stocks and reawakened concerns that the exit from the European Union could destabilize the country’s financial system or economy. The Bank of England later said it had eased bank rules to allow them to lend up to 150 billion pounds more to households and businesses.
Halliburton and ConocoPhillips were down along with Schlumberger. Among the stocks that were up on the day were Clorox, Coca-Cola, Verizon and Con Edison. Gores Holdings is acquiring a majority stake in Hostess Brands, the company that makes Twinkies and Ding Dongs. Gores will pay $375 million in cash and commit another $350 million in the deal. Hostess filed for Chapter 11 bankruptcy protection four years ago. Gores Holdings is an acquisition company run by the private equity firm Gores Group. JPMorgan, Wells Fargo and Citigroup tumbled. Tesla declined after the electric car maker missed vehicle delivery targets for the second consecutive quarter. Netflix advanced after it reached an agreement with Comcast for its services to be available on the cable company’s set-top box. Comcast was down.
Tepid U.S. data added to overall growth worries. May factory goods orders declined 1.0 percent on weak demand for transportation and defense capital goods.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was unchanged at US$1,350.75. Copper futures were down 1.5 percent to US$2.18. WTI spot crude was down US$2.23 to US$46.76. Dated Brent spot crude was down US$2.00 to US$48.10. The US dollar was up against the euro, pound and the Canadian and Australian dollars. However, it declined against the yen. The currency was unchanged against the Swiss franc. The Dollar Index was up 0.9 percent. The yield on US Treasury 30 year bond was down 8 basis points to 2.2.15 percent while the yield on the 10 year note declined 6 basis points to 1.38 percent. The yields fell to record levels.
Europe
Stock indices with the exception of the FTSE retreated Tuesday. Financial stocks were under heavy pressure due to concerns over Brexit and weakness in Italian banks. Energy stocks also declined along with crude oil prices. The FTSE added 0.4 percent while the CAC, DAX and SMI declined 1.7 percent, 1.8 percent and 1.4 percent respectively.
The Bank of England lowered its capital buffer requirements for banks as the outlook for financial stability after the “Brexit” vote. In its bi-annual Financial Stability Report, the bank also vowed to take more actions to ensure stability in the financial system in the face of crystallizing risks. The Financial Policy Committee trimmed the countercyclical capital buffer rate to zero percent from 0.5 percent of banks’ UK exposures with immediate effect. The FPC expects to maintain this zero percent countercyclical capital buffer rate until at least June 2017. The decision to reduce the buffer reverses a decision it took in March. The bank also said the regulatory capital buffers will be reduced by £5.7 billion, thus increasing the amount available for lending to British households and businesses by up to £150 billion.
Daimler, BMW, Volkswagen, Peugeot and Renault retreated. ThyssenKrupp and Salzgitter dropped. Banks including Commerzbank, Deutsche Bank, Société Générale, Crédit Agricole and BNP Paribas all closed lower. Technip and Total were down. UBS was down in Zurich. The company said it has received a disclosure order from the Swiss Federal Tax Administration to hand over identifying information about current and former French clients. Shares of struggling Italian banks tumbled Monday after the European Central Bank told Monte dei Paschi di Siena, the country’s third-biggest lender, to reduce its debt burden.
In London, homebuilders Barratt Development, Berkeley Group and Taylor Wimpey dropped a day after an influential survey suggested that UK’s construction sector suffered its worst performance in June since 2009. Persimmon retreated even though it said that trading through the first half of the year has been strong. Group revenues for the period were £1.49 billion pounds, up 12 percent from the prior year. It expects the Group’s first half operating margin will be ahead of the 23.0 percent delivered in the second half of 2015. Land Securities Group, the largest commercial property development and investment company in the UK tumbled. Aberdeen Asset Management was down after Standard Life Investments, the fund arm of Standard Life, suspended trading in its 2.9 billion-pound UK real estate fund.
Asia Pacific
Most stock indices in this region declined Tuesday as commodity prices retreated and the Japanese yen strengthened on worries about renewed political uncertainty in the UK and the fragile balance sheets of Italian banks.
The Shanghai Composite added 0.6 percent after the June service PMI signaled an improvement in activity levels and President Xi Jinping called for efforts to propel reforms of state-owned enterprises. The Hang Seng however dropped 1.5 percent.
The Nikkei slid 0.7 percent after rising for six consecutive days. The yen’s strength hurt exporters and banks followed their European peers lower. Fast Retailing, Fanuc, Inpex and banks Mitsubishi UFJ Financial and Sumitomo Mitsui Financial closed lower. Japan Display shares soared after Singapore-based fund Effissimo bought a 5.44 percent stake in the company. In economic releases, Japan’s service sector activity deteriorated in June, led by the fastest decline in new orders in nearly five years. The services PMI dropped to 49.4 from 50.4 in May.
The All Ordinaries and S&P/ASX tumbled 1.0 percent, dragged down by financials as uncertainty prevailed following the weekend’s inconclusive federal election results. While economic reports on retail sales, service sector activity and the trade balance painted a mixed picture, the Reserve Bank of Australia left interest rates unchanged at 1.75 percent as widely expected and maintained an explicit easing bias in its policy statement. BHP Billiton and Fortescue Metals Group were lower despite stronger iron ore prices. Oil Search, Origin Energy, Santos and Woodside Petroleum retreated after Brent crude futures dropped for a second day on news of increased production from Nigeria.
The Kospi was down 0.3 percent on institutional selling in thin trading. The Sensex closed 0.4 percent lower —political uncertainty in the UK and fragile balance sheets of Italian banks prompted traders to take profits after a six-day rally.
Global Stock Markets
Looking forward
Germany posts May manufacturers’ orders. The US and Canada release May international trade. In the US, June PMI services index and ISM nonmanufacturing index will be released. The Federal Reserve publishes minutes from its latest FOMC meeting.
Source: Fidelity
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