On 07 October, 2016 – Stocks retreated on the last day of the week
A combination of a sinking pound and a slightly lower than expected US employment report sent global stocks tumbling.
United States
US markets followed those around the globe and retreated Friday after a solid but uninspiring September employment report. Earnings reports and guidance from companies were mixed as well. The Dow Jones industrials were down 0.2 percent while the S&P and Nasdaq both lost 0.3 percent. For the week, the Dow and Nasdaq declined 0.4 percent while the S&P was 0.7 percent lower.
The US economy added156,000 jobs last month – slightly below expectations for a 168,000 increase. The unemployment rate edged up to 5.0 percent because the participation rate increased as more of the unemployed reentered the job market. The British pound plunged 6 percent in a “flash crash,” early in the Asian trading session in thin volume to its lowest level in more than three decades before rebounding and recouping some of the loss. Possible triggers cited by market watchers included a trader’s errant keystroke, a rogue automated trading algorithm or comments to British media by François Hollande, the French president, who insisted the European Union must take a tough stance in negotiating Britain’s exit from the EU’s tariff-free single market.
Honeywell International dropped after the company lowered its estimates for third-quarter results. The company blamed lower shipments to aviation equipment makers and delays in its military and space businesses among other items. Tyson Foods tumbled after an analyst predicted a big drop in Tyson’s stock because of a lawsuit that accuses it and other companies of manipulating poultry prices. Shares of property and casualty insurers rebounded from big declines on Thursday on hopes that losses from Hurricane Matthew would be less than feared. Gap jumped after the company reported September sales results that showed growth at its Old Navy chain. Other retailers including Ralph Lauren and Urban Outfitters also rallied. Ruby Tuesday tumbled after the company late Thursday reported a loss in its fiscal first quarter.
On Friday, Fed Vice Chair Stanley Fischer compared the latest employment report to a “Goldilocks” one and said hiring was continuing at a pace “fully consistent” with lower unemployment, but continued to contrast with a weak overall economic expansion. Meanwhile, Cleveland Fed President Loretta Mester said a rate increase is appropriate and that “all meetings are on the table.” The FOMC next meets on November 2, a week before the US presidential election.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$4.25 to US$1,258.75. Copper futures were up 0.4 percent to US$2.16. WTI spot crude was down 63 US cents to US$49.81. Dated Brent spot crude was down 58 US cents to US$51.93. The US dollar was up against the pound and the Canadian dollar. However, it declined against the yen, euro and Swiss franc. It was unchanged against the Australian dollar. The Dollar Index was up 0.2 percent. The yield on US Treasury 30 year bond was down 1 basis point to 2.45 percent while the yield on the 10 year note slipped 2 basis points to 1.72 percent.
Europe
Most European markets ended the week on a negative note. The risk appetite among investors all but disappeared after the British pound briefly plunged over 6 percent in early thin Asian trading. The currency recovered some ground, but still finished at a new 31-year low against the US dollar. The weaker than expected US jobs report also had a negative impact on investor sentiment. However, the FTSE advanced 0.6 percent — the weakness in the pound provided a boost British exporters. On the week, the FTSE was up 2.1 percent. The SMI lost 0.6 percent Friday while the CAC and DAX were 0.7 percent lower. On the week, the SMI and DAX were down 0.2 percent while the CAC was virtually unchanged.
French president François Hollande warned the UK to face “tough Brexit negotiations” as it leaves the EU. According to a report in the Financial Times, the French President Hollande said to the guests at the 20th anniversary of Notre Europe in Paris that the UK must suffer the consequences of leaving the European Union.
RWE retreated after its renewable energy unit, Innogy, debuted on the stock market. EDF declined after raising $2.655 billion from 20 investors through a series of senior bond issues on the Taiwanese market. In London, airline easyJet declined on broker downgrades after its profit warning yesterday. Mining stocks were among the best performers, due to the drop in the pound. Glencore, Fresnillo, Randgold Resources, Anglo American, BHP Billiton, Rio Tinto and Antofagasta all finished higher. Royal Dutch Shell, BP and Tullow Oil advanced.
Germany’s industrial production recovered at a faster than expected pace in August. Industrial output jumped 2.5 percent on the month, more than reversing a 1.5 percent decline in July. France’s industrial production rebounded more than expected in August. Industrial output was up 2.1 percent on the month after it retreated 0.5 percent the month before. UK industrial production unexpectedly declined 0.4 percent on the month. The UK visible trade deficit widened more than expected in August. The trade in goods deficit widened to £12.1 billion from July’s £9.5.
Asia Pacific
Asian stocks fell broadly as investors waited for the US employment report that would be released after markets here were closed for the week. A plunge in the pound to a 31-year low on anxiety over a “hard” exit by Britain from the European Union also kept investors nervous heading into the weekend. The mainland Chinese markets remained closed for the Golden Week holidays and will reopen on Monday.
The Hang Seng was down 0.4 percent after disappointing forex reserves data from China. The country’s foreign exchange reserves shrank at a faster pace to extend declines for the third consecutive month in September according to the People’s Bank of China. The Hang Seng added 2.4 percent on the week.
The Nikkei and Topix both were down 0.2 percent. On the week, the indices were up 2.5 percent and 2.1 percent respectively. Seven & I Holdings dropped after the retailer unveiled a restructuring plan that included closing some department stores. While exporters ended mixed, banks closed mostly lower on renewed concerns over Europe’s banking woes. Bank of Japan Governor Haruhiko Kuroda today urged European policymakers to act promptly to resolve the problems affecting their banking system.
Both the S&P/ASX and All Ordinaries were 0.3 percent lower. On the week, the S&P/ASX added 0.6 percent while the All Ordinaries was 0.4 percent higher. Gold miners Newcrest and Regis Resources tumbled following the price of gold lower. Energy stocks such as Beach Energy, Oil Search and Woodside Petroleum rose after oil prices hit a four-month high overnight to climb back above $50 a barrel.
The Kospi was down 0.6 percent after the British pound suffered a “flash crash” amid growing fears of a “hard” exit by Britain from the EU.
Looking Forward
Central Bank activities
October 12
United States
FOMC Minutes
The following indicators will be released this week…
Europe
October 10
Germany
Merchandise Trade (August)
Italy
Industrial Production (August)
October 11
Germany
ZEW Survey (October)
October 12
Eurozone
Industrial Production (August)
October 14
Eurozone
Merchandise Trade (August)
Asia/Pacific
October 12
Japan
Machinery Orders (August)
India
Consumer Price Index (September)
Industrial Production (August)
October 14
Japan
Producer Price Index (September)
China
Consumer Price Index (September)
Consumer Price Index (September)
Americas
October 12
United States
JOLTS (August)
October 13
United States
Initial Unemployment Claims (week ending prior Saturday)
Import/Export Prices (September)
October 14
United States
Retail Sales (September)
Producer Price Index (September)
Consumer Sentiment (October preliminary)
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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