Daily reviews

15.04.2019

Global stocks mixed, dollar mostly lower, major central banks confirm dovish stance

news

The FOMC meeting minutes showed that The Federal Reserve’s decision in March to cease raising interest rates this year was driven by unease over the U.S. and global economies and surprisingly subdued inflation.

  • China’s March trade surplus soar past expectations
  • The S&P 500 gains for a third straight week
  • The Fed is leaving the door open for more rate hikes if the economy improves
  • Draghi warns that data confirm slower growth momentum in the region
  • Oil prices extend the rally for a third week in a row
  • US and China are «close to the final round» of negotiations

Asian equities

After some hesitations earlier in the week, Asian shares turned lower on Friday as trepidation ahead of the start of the U.S. corporate earnings season and underlying anxiety over the global growth outlook eclipsed some good U.S. economic data. China’s March trade surplus soared past expectations and China’s new yuan loans expanded in March, which somehow fueled global risk sentiment towards the end of the week. But in general, the market reaction was subdued due to a mixed picture as exports rebounded in March but imports shrank for a fourth straight month and at a sharper pace. Imports dropped 7.6 percent from a year earlier, much worse than analysts' forecasts for a 1.3 percent fall. Additionally, a Reuters poll showed that China's economic growth is expected to slow to a near 30-year low of 6.2 percent this year.

US equities

The S&P 500 gained for a third straight week as it punched through the key 2,900 level for the first time in six months. JPMorgan Chase & Co. announced a strong first-quarter report. The bank earned $2.65 a share in the first quarter, beating consensus estimates of $2.35. Revenue rose 5% to $29.9 billion as the company benefitted from higher interest rates and strength in consumer banking. Meanwhile, Wells Fargo results also topped consensus estimates. Earnings per share of $1.20 beat the average estimate of $1.10, while revenue of $21.6 billion out-performed the average estimate of $20.99 billion. Shares rose 2% after the company released results. Walt Disney Co. jumped to a record after the company revealed some serious details about its upcoming streaming service, Disney+. Netflix Inc.’s shares dipped on the news from Disney. Earlier in the week, the US stock indices were mixed and mostly lower as positive developments on trade war front failed to lift investor sentiment, and market participants were cautious ahead of the first quarter corporate earnings.

On Sunday, U.S. Treasury Secretary Steven Mnuchin said a U.S.-China trade agreement would go «way beyond» previous efforts to open China's markets to U.S. companies and hoped that the two sides were "close to the final round" of negotiations. He also noted that he and U.S. Trade Representative Robert Lighthizer would hold two calls next week with Chinese Vice Premier Liu He. Against this backdrop, US stocks could receive a boost in the days to come as the two countries continue to move towards a deal.

Currencies

It was a relatively calm week for the dollar which declined marginally against the European currencies and appreciated against the Japanese yen. The economic data was mixed and had a short-lived impact on the greenback. US factory orders declined slightly, while shipments increased. March business optimism stalled amid a week outlook for economic growth. Meanwhile, March consumer prices posted the biggest increase in 14 months and producer prices posted the biggest increase in 5 months. Weekly jobless claims dropped to the lowest level since 1969, while consumer sentiment fell as outlook for economy weakened.

Meanwhile, the FOMC meeting minutes showed that The Federal Reserve’s decision in March to cease raising interest rates this year was driven by unease over the U.S. and global economies and surprisingly subdued inflation. The Fed’s worries include sluggish U.S. growth early in the new year, a weaker global economy, the messy attempt by the U.K. to leave the European Union and the ongoing trade tensions between the Trump administration and China. Meanwhile, several Fed members suggested inflation might not be able to meet the central bank’s longstanding 2% target. At the same time, the minutes showed that the Fed officials are leaving the door open for more rate hikes if the economy improves.

EURUSD received support around 1.12 and tried to challenge the 1.13 barrier. The pair registered a three-week high at 1.1323 but finished marginally below the psychological level. US threatened to slap new tariffs on EU goods in retaliation against Airbus subsidies, while Europe slammed the ‘exaggerated’ US tariff threat and prepared to retaliate. Despite the geopolitical threat, the euro was mainly on the offensive. The European Central Bank held interest rates steady on Wednesday. The ECB has been forced to backtrack on its plans to tighten monetary policy, amid an intensifying climate of economic gloom. At a press-conference, Mario Draghi warned that data gathered by policymakers in recent weeks had confirmed slower growth momentum in the euro zone. As a reminder, the International Monetary Fund sharply downgraded its economic growth forecast for the euro zone economy recently.

Commodities

In commodities, oil prices rose to fresh five-month highs marginally below the $72 figure, extending the rally for a third week in a row. U.S. energy firms last week increased the number of oil rigs operating for a second week in a row. Companies added two oil rigs in the week to April 12, bringing the total count to 833, Baker Hughes data showed. Meanwhile, according to the EIA report, U.S. crude oil inventories rose, marking its third-consecutive week of stockpile builds and its second-straight surge of more than 7 million barrels. Gasoline inventories plunged by 7.71 million barrels, compared to expectations for a draw of 2.01 million barrels. Despite mixed data, Brent continued to rally due to geopolitics as political upheaval in Libya increased concern over tightening supply. Forces loyal to renegade general Khalifa Haftar continued their advance on the capital, and his forces are already in control of oil fields that produce half or more of Libya's total output of about 1.1 million barrels of crude a day. In the days to come, oil prices could extend gains should the situation in Libya deteriorate further.