On 01 June, 2016 – Global growth worries

Most global stocks retreated under an avalanche of mixed economic data.
United States
US markets pared early losses to end the day little changed. Trading was choppy. The S&P and Nasdaq ended 0.1 percent higher on the day while the Dow Jones industrials were virtually unchanged (up 2.5 points). Economic data were mixed.
Telecommunications companies declined. Under Armour slumped after the company slashed its full-year revenue guidance, saying that the closure of Sports Authority stores would hurt its sales. A bankruptcy court recently decided to approve the liquidation of the privately held Sports Authority, which sold Under Armour goods, rather than a restructuring or sale. General Motors and Ford Motor were down after the automakers reported lower sales for May, usually one of the strongest months of the year for the American auto industry. Helmerich & Payne and National Oilwell Varco retreated. Michael Kors rallied after the company reported that strong online sales and new store locations helped give a big lift to its fiscal fourth-quarter revenue. Cracker Barrel gained after the company reported strong earnings growth for its fiscal third quarter.
Among the economic data released today, the May ISM manufacturing index climbed to 51.3 from 50.8 in April. A slowing in delivery times gave the index a lift, otherwise other components were little changed. April construction spending tumbled 1.8 percent on the month but the decline was partially explained by hefty upward revisions in both February and March.
The Federal Reserve published its Beige Book in preparation for its FOMC meeting on June 14 and 15. In a word, the economy is described as growing modestly. The report says employment has grown only modestly since the last report when employment was described as having strengthened. It did note that “tight labor markets were widely noted.” And wages were described as having increased modestly since last time. Prices in general were described as up slightly, in line with the last report. The consumer sector was described as growing moderately while manufacturing is mixed. For agriculture, crop conditions are described as promising though low commodity prices are hurting farm incomes. The report does not appear to provide a basis for a rate increase later this month.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$2.40 to US$1,214.50. Copper futures were down 1.1 percent to US$2.07. WTI spot crude was up 10 US cents to US$49.20. Dated Brent spot crude was up 2 US cents to US$49.91. The US dollar was down against the yen, euro, Swiss franc and the Canadian and Australian dollars. However, it advanced against the pound. The Dollar Index was down 0.5 percent. The yield on US Treasury 30 year bond was down 3 basis points to 2.62 percent while the yield on the 10 year note was up 1 basis point to 1.85 percent.
Europe
European stocks declined, extending losses from the previous day. Investor concerns over a potential UK exit of the European Union continued to weigh on the markets after the latest opinion polls showed that the “Brexit” campaign has taken a surprise lead in the EU referendum. The polls have been fluctuating almost daily both for and against Brexit. The FTSE and DAX lost 0.6 percent, the CAC was down 0.7 percent and the SMI was 0.4 percent lower.
In its Global Economic Outlook, the OECD reiterated its view that a Brexit vote in the country’s referendum this month would depress growth in Europe and elsewhere substantially. “Brexit” concerns had a negative impact on homebuilders in London. Bank stocks, especially in the periphery of Europe, turned in another negative performance. Travel and retail stocks were also down after the US issued a terror warning to its citizens regarding travel to Europe over the summer. Mining and resource stocks were under pressure due to weak data and concerns over the strength of China’s economy.
E.ON and RWE retreated. Banks including Deutsche Bank, Commerzbank, Société Générale, Crédit Agricole and BNP Paribas declined. Automakers including BMW, Volkswagen and Daimler also finished lower. In Paris, hotel group Accor and airline Air-France KLM were down after the United States issued a warning to American citizens visiting Europe this summer, saying terrorists could target major tourist sites, restaurants and commercial centers. In London, Wolseley declined after it reported decent revenue growth in the third quarter but cautioned on the outlook. Berkeley Group, Barratt Developments, Taylor Wimpey and Persimmon retreated. Miners declined after disappointing Chinese manufacturing data.
Eurozone manufacturing growth slowed in May as inflows of new work from domestic and export markets continued to rise at lacklustre rates. The Eurozone manufacturing PMI fell to a 3-month low of 51.5 from 51.7 in April. However, the UK manufacturing PMI rose to 50.1 from 49.4 in April.
Asia Pacific
Stocks were mostly lower after giving up early gains. Oil retreated while the yen strengthened and a slew of data painted a mixed picture of regional economies. Lingering uncertainty over Brexit and caution ahead of Thursday’s OPEC and the ECB meetings as well as Friday’s US jobs report also kept investors cautious.
The Shanghai Composite slipped 0.1 percent as a slew of data reinforced concerns that the economy is decelerating. The Hang Seng was 0.3 percent lower. While China’s official manufacturing PMI was 50.1 for May marking a third straight month of expansion, the Caixin manufacturing PMI contracted for the 15th straight month with a reading of 49.2, down from 49.4 in April.
The Nikkei dropped 1.6 percent as the yen strengthened and the latest manufacturing PMI showed conditions weakened for a third consecutive month in May on weak demand from overseas consumers. The manufacturing PMI slid to 47.7 from 48.2, no doubt negatively affected by the mid-April earthquakes in southern Japan. The yen jumped after Prime Minister Shinzo Abe told lawmakers he would delay an increase in Japan’s sales tax for a second time until 2019, in a bid to help support consumer spending. He also pledged structural reforms and fiscal stimulus to boost economic growth. Sony, Nissan Motor, Mazda, Honda, Panasonic and Sharp declined on the stronger yen. Daiichi Sankyo tumbled after the drug maker said it would not proceed with the second part of its late-stage study on a lung cancer drug. Softbank Group rose after saying it would sell at least $7.9 billion of its stake in Chinese e-commerce giant Alibaba Group.
Both the S&P/ASX and All Ordinaries were down 1.0 percent. Commodity price weakness kept mining and energy stocks under pressure. Australia’s first quarter gross domestic product was up 1.1 percent from the previous quarter and 3.1 percent from the same quarter a year ago and fastest pace since the September quarter 2012. Miners followed iron ore prices lower on renewed concerns over a global supply glut. The big four banks also declined as upbeat GDP data dented hopes of a rate cut by the Reserve Bank Australia at its next policy meeting on June 7.
The Kospi was virtually unchanged (down 0.68 point) after the manufacturing PMI edged up to a reading of 50.1. The Sensex added 0.2 percent.
Global Stock Markets

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Looking forward*
Australia posts April retail sales and merchandise trade balance. The European Central Bank publishes its monetary policy decision. May construction PMI for the UK will be released. In the US, May ADP employment report and weekly jobless claims, EIA petroleum status and natural gas reports and Fed balance sheet and money supply will be released. OPEC holds a meeting in Vienna.

*Note — all releases are listed in local time.

Source: Fidelity

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