Daily reviews

28.10.2019

Weekly market overview: Stocks, dollar rise amid trade hopes, ECB maintains status-quo

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Global stocks mixed-to-positive amid positive trade developments;
South Korea’s economy slowed in the third quarter;
ECB left monetary policy unchanged, as expected;
Dollar finished higher against the major rivals;
Brent crude posted strong weekly gains, settled above $61.

Asian equities


Major Asian stocks posted mixed but mostly positive weekly results despite modest dynamics on Friday, when the regional data calendar was light. Japanese markets advanced, with the Nikkei and Topix indices up 0.2 percent and 0.3 percent respectively on the day and both closing the week 1.5 percent higher. The Shanghai Composite index rose 0.5 percent on the day and was flat on the week, while Hong Kong’s Hang Seng index fell 0.5 percent on the day and 0.2 percent on the week.

On the data front, South Korea’s economy slowed in the third quarter, growing at 0.4%, according to preliminary estimates by its central bank. In October, it cut its interest rate for the second time in three months to prop up growth. Singapore's manufacturing output rose 0.1 percent on the year in September after falling a revised 6.4 percent in August.

As for corporate results, chip giant SK Hynix posted third-quarter operating profit of $405 million — a 93% plunge as compared to the previous year’s quarter, as memory chip prices continue to fall. However, the company’s stock added nearly 3% as the results beat the estimates. Meanwhile, Hyundai Motor’s third-quarter earnings showed its net profit rose 59% to $364.8 million, missing estimates of $684 billion. Its shares rose 0.83%.

US equities


US equities rose towards the end of the week, with technology, materials, and energy stocks leading on positive earnings. Hopes for a US-China trade deal also helped. The Dow industrials rose 0.6 percent, the S&P 500 gained 0.4 percent, and the NASDAQ was up 0.7 percent. Risk sentiment improved after US Trade Representative Robert Lighthizer said that the US and China are close to finalizing terms of a trade deal. Energy shares gained amid a rise in oil prices. Industrials also advanced, with machinery shares leading.

As for earnings, Intel rallied over 8 percent to lead semiconductors higher after the results beat estimates, with the company raised its Q4 and annual guidance. Visa rose nearly 1 percent after earnings beat and healthy business report. Agriculture chemicals company Scotts Miracle-Gro rose over 4.0 percent on an analyst upgrade. H & E Equipment rose 9.7 percent after reporting strong results. On the downside, Amazon fell 1.1 percent after reporting a big earnings miss.

On the data front, consumer sentiment fell back in the second half of October compared to the first half but still showed solid improvement from September. The index ended October at 95.5 versus 96.0 at mid-month and against 93.2 in September. Meanwhile, the US Treasury 30-year bond yield was up 3 basis point to 2.29 percent while the 10-year note yield rose 4 basis points to 1.80 percent.

Currencies


The dollar was higher against the majors, with EURUSD struggled to break above the 1.1180 local resistance and slipped down below the 1.11 handle. The flash eurozone manufacturing PMI rose to a 2-month high of 46.2, while the flash services PMI rose to 51.8 from 51.6. Economists had expected a 46 reading on manufacturing and a 51.9 reading on services. As such, the numbers showed the regional economy is mired close to stagnation at the start of the fourth quarter.

Meanwhile, The European Central Bank left policy unchanged as expected but kept the door open to even more stimulus as the economy continues to suffer from the fallout of broader global turmoil. As a reminder, the central bank unleashed a massive stimulus package last month, cutting rates deeper into negative territory and relaunching a recently shuttered bond purchase scheme.

Now, market focus shifts to the upcoming FOMC meeting due on Tuesday and Wednesday. The market has almost fully priced in a rate cut of 25 bps in the meeting. There are also speculations that the central bank would change the forward guidance and signal a temporary end to rate cut. The Fed will likely maintain the stance to act appropriately according to incoming data.

Commodities


Crude oil prices rose posted the strongest weekly gains in more than a month due to optimism over a U.S.-China trade deal, falling U.S. crude stocks and hopes of a possible action from OPEC+ to extend output cuts. The Organization of the Petroleum Exporting Countries (OPEC) and its allies are expected to implement bigger production cuts when they next meet in December in a bid to counter the weaker growth in demand. Meanwhile, broader economic concerns continued to persist. Brent crude saw a weekly gain of more than 4%, its best since September 20.

Traders cheered signs of progress in talks on resolving the U.S.-China trade dispute after the US officials said the two countries were close to finalizing the first part of a trade deal after. The market was also supported by a drop in U.S. inventories, with crude stocks falling by about 1.7 million barrels. Also, the United States energy companies reduced the number of oil rigs operating last week, leading to a record 11-month decline. In a broader picture, the fragile economic outlook will likely continue to weigh on fuel demand, while the hopes of a bilateral deal on U.S.-China trade may continue to underpin a bullish tone on oil prices. Now, Brent needs to hold above the $61 handle in order to extend gains in the short term.