On 12 July, 2017 – News was dominated by the Fed
Shares in the US and Europe rallied on dovish comments from Fed Chair Janet Yellen.
United States
US stocks rallied Wednesday — the strength came as traders reacted positively to Federal Reserve Chair Janet Yellen’s remarks before the House Financial Services Committee. The Dow Jones industrials were up 0.6 percent, the S&P added 0.7 percent and the Nasdaq was 1.1 percent higher. The Dow closed at a new record high. The US currency was virtually unchanged on the day.
American Airlines Group advanced after reporting quarterly results that beat expectations. Delta, United Continental Holdings, Alaska Air Group, Spirit Airlines and JetBlue Airways rallied.
The Federal Reserve published its Beige Book in preparation for its July 25 and 26 FOMC meeting. The report said that the US economy expanded at a “slight to moderate” rate in June, with the labor market continuing to tighten and price growth continuing to be modest. The Fed said consumer spending “appears to be” rising across the “majority” of the Fed’s dozen district banks, led by non-auto sales and tourism. The report is consistent with recent Fed policy statements and the testimony on Wednesday by Fed Chair Janet Yellen, who told Congress the central bank remained on track to continue raising rates and to soon start reducing the size of its asset holdings.
There were no surprises in the text of Janet Yellen’s testimony as she repeated that tapering will begin sometime this year and that a limited number of gradual rate increases will extend over the next few years. Yellen said the long-run level for the balance sheet, now at $4.5 trillion, is still unknown and that the Fed does not intend to use unwinding as a policy tool. On rates, she said the neutral rate is “quite low” by historical standards and that the fed funds rate doesn’t have far to go to hit a neutral stance for policy. She repeated that inflation is being held down by unusual factors (cell phones, drugs and gasoline) and that uncertainty remains when inflation will respond to high levels of employment.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$7.75 to US$1,218.80. Copper futures were up 0.4 percent to US$2.68. WTI spot crude was up 40 US cents to US$45.44. Dated Brent spot crude was up 18 US cents to US$47.70. The US dollar was up against the euro and the Swiss franc. It declined against the yen, pound and the Canadian and Australian dollars. The Dollar Index was virtually unchanged. The yield on US Treasury 30 year bond was down 3 basis points to 2.89 percent while the yield on the 10 year note was down 4 basis points to 2.32 percent.
Europe
European markets began trading on a positive note. The gains accelerated following the positive open in the US and the prepared remarks made by Federal Reserve Chair Janet Yellen as she began her semi-annual testimony before the House Financial Services Committee. The FTSE was up 1.2 percent, the CAC and SMI gained 1.6 percent and the DAX advanced 1.5 percent.
EU Chief Brexit Negotiator Michel Barnier said Wednesday the UK will have to settle the financial payment it owes to the European Union on Brexit and must make clear its position on the same as well as on border issues and other matters regarding separation for talks to make progress.
Retailer Metro increased as its demerger became legally effective. Fraport advanced after the owner and operator of Germany’s Frankfurt Airport reported higher passenger traffic in FRA and across Group airports in June. Wirecard gained after its supervisory board agreed to modify and enlarge the company’s operative management team effective 1 January 2018. Valeo climbed on reports the car parts maker is considering selling a hydraulic actuator business to Italian company Raicam.
Burberry rallied after it reported a surprising 4 percent rise in sales for the first quarter, helped by demand from China. B&M also rose 1 after reporting a 7.3 percent rise in like for like sales in the first quarter. Amec Foster Wheeler sank after the Serious Fraud Office opened an investigation into the activities of the oil and gas services company for suspected bribery, corruption and related offenses. Pearson tumbled to extend Tuesday’s selloff. Micro Focus International declined after reporting full year results. Kingfisher retreated on a broker downgrade. Energy firms BP and Royal Dutch Shell advanced.
May Eurozone industrial production improved more than expected — output was up a monthly 1.3 percent and up from a revised 0.3 percent increase in April. Britain’s unemployment rate declined to the lowest level in 42 years and the employment rate was the highest on record, while wage growth continued to lag behind inflation.
Asia Pacific
Asian stocks were mostly lower on Wednesday as the US dollar weakened against the yen after the release of emails by US President Donald Trump’s son that cited Russian support for his father’s 2016 presidential campaign. A fresh rally in oil prices boosted energy stocks though general sentiment remained cautious before Federal Reserve Chair Janet Yellen’s Congressional testimony later in the global market day and again on Thursday.
US crude oil futures rallied to extend overnight gains after API data indicated another large inventory drawdown and the US Energy Information Administration lowered its forecast for 2018 crude production. Speculation was that OPEC is considering putting caps on oil production in Libya and Nigeria.
The Shanghai Composite retreated 0.2 percent prior to Yellen’s testimony. The Hang Seng however, added 0.6 percent. The Hang Seng vaulted above the 26,000 level with banks and technology stocks driving the gain.
The Nikkei and Topix both declined 0.5 percent as the yen strengthened. Exporters such as Toyota Motor and TDK were lower. Banks Mitsubishi UFJ Financial, Mizuho Financial and Sumitomo Mitsui Financial dropped as investors waited for earnings this week from big US banks such as JP Morgan Chase, Wells Fargo and Citigroup. Toshiba rose after Western Digital secured a temporary US court order to access its databases and chip samples.
The S&P/ASX lost 1.0 percent and the All Ordinaries were 0.9 percent lower. The big four banks retreated. Healthcare stocks also were down broadly, with Sonic Healthcare, CSL, Ramsay Health Care and Primary Health Care declining. Rio Tinto closed marginally higher ahead of its production report due next week. BHP Billiton and Fortescue Metals Group also advanced on rising iron ore prices.
The Kospi was down 0.2 percent while the Sensex added 0.2 percent.
Looking forward
June Chinese merchandise trade will be released. French and Germany consumer price indices will be released along with Swiss producer & import price index. In the US, June producer prices along with weekly jobless claims, money supply and Fed balance sheet will be released. Fed chair Janet Yellen continues her Congressional testimony and will be speaking to the Senate Banking Committee.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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