Market Talk – May 23, 2019

ASIA / AUSTRALIA:

India’s Prime Minister Narendra Modi has been elected for a second term, thanking voters for five more years in office. Modi has had a reputation of being a nationalist and making sure the security of the nation was at the forefront of voters’ minds. There will be those unhappy with the outcome as his party is pushing forward with the national register and omitting quite a few families who believe they are rightfully Indian.

Elsewhere, latest reports from the US-China trade spat is showing Chinese smartphone buyers are opting toward alternatives to Apple in order to support the nation. Apple shares have dropped over 13% in recent days. A Chinese senior officer has explained that trade talks cannot continue unless the United States “adjusts its wrong actions” (see more below in US / Americas). The media is now calling the issue between the US and China as the new Cold War.

The major Asian stock markets had a negative day today. Shanghai decreased 39.19 points or -1.36% to 2,852.52; Kospi decreased 5.27 points or -0.26% to 2,059.59; ASX 200 decreased 18.90 points or -0.29% to 6,491.80; NIKKEI 225 decreased 132.23 points or -0.62% to 21,151.14; Hang Seng decreased 438.81 points or -1.58% to 27,267.13; and SENSEX decreased 298.82 points or -0.76% to 38,811.39.

The major Asian currency markets had a mixed day today. AUDUSD increased 0.0017 or 0.25% to 0.6897; NZDUSD increased 0.0029 or 0.45% to 0.6522; USDJPY decreased 0.7380 or 0.67% to 109.6020; and USDCNY decreased 0.0071 or 0.10% to 6.9264.

Gold increased 11.73USD/t oz. or 0.92% to 1,285.05 and silver increased 0.177 USD/t. oz or 1.23% to 14.5981.

Some economic news:

Australia:

  • Manufacturing PMI increased from 50.9 to 51.1
  • Services PMI increased from 50.1 to 52.3

Japan:

  • Foreign Bonds Buying increased from 1,169.5B to 1,355.7B
  • Foreign Investments in Japanese Stocks decreased from 1,427.4B to -58.0B
  • Manufacturing PMI (May) decreased from 50.2 to 49.6

Singapore:

  • CPI (YoY) (Apr) increased from 0.6% to 0.8%

Hong Kong:

  • CPI (YoY) (Apr) increased from 2.10% to 2.90%

EUROPE / EMEA:

In the UK, Prime Minister Theresa May’s Brexit withdrawal bill will not be published or debated until early June, the government says.

Just as we thought the UK was shaping up to be neutral in the conflict, the UK announced it will review the initial partnership with Huawei in creating a 5G network infrastructure. A top Chinese diplomat has warned that there could be “substantial” repercussions for China’s investment in the UK if Huawei were to be banned from Britain’s 5G network. Investments in the UK from China reportedly more than doubled between 2016 and 2017.

Meanwhile, the US Pentagon is reported to be planning to send 5,000-10,000 troops into the middle east. This comes about with the rising tensions with US and Iran.

Lastly, the EU parliament elections kicked off today with voting in the UK and Netherlands.

The major Europe stock markets had a negative day today. CAC 40 decreased 97.60 points or -1.81% to 5,281.37; FTSE 100 decreased 103.15 points or -1.41% to 7,231.04; and DAX decreased 216.33 points or -1.78% to 11,952.41.

The major Europe currency markets had a mixed day today. EURUSD increased 0.0029 or 0.26% to 1.1181; GBPUSD increased 0.0014 or 0.11% to 1.26750; and USDCHF decreased 0.0060 or 0.59% to 1.0036.

Some economic news:

Germany:

  • German GDP (QoQ) (Q1) remain the same at 0.4%
  • German GDP (YoY) (Q1) remain the same at 0.6%
  • German Composite PMI (May) increased from 52.2 to 52.4
  • German Manufacturing PMI (May) decreased from 44.4 to 44.3
  • German Services PMI (May) decreased from 55.7 to 55.0
  • German Business Expectations increased from 95.2 to 95.3
  • German Current Assessment decreased from 103.3 to 100.6
  • German Ifo Business Climate Index decreased from 99.2 to 97.9

France:

  • French Business Survey (May) increased from 101 to 104
  • French Manufacturing PMI (May) increased from 50.0 to 50.6
  • French Markit Composite PMI (May) increased from 50.1 to 51.3
  • French Services PMI (May)  increased from 50.5 to 51.7

Norway:

  • Unemployment Rate (Mar) decreased from 3.8% to 3.5%

Eurozone:

  • Manufacturing PMI (May) decreased from 47.9 to 47.7
  • Markit Composite PMI (May) increased from 51.5 to 51.6
  • Services PMI (May) decreased from 52.8 to 52.5

U.S. / AMERICAS:

As previously referenced, trade tensions are increasing with China – some might even say it is turning hostile. Huawei’s blacklist status in the U.S. has been met with harsh criticism, and may be a major friction point for China. Chinese Ministry of Commerce spokesperson Gao Feng told reporters that China is “firmly opposed” to the “suppression of Chinese companies.” Feng warned that the restrictions will do more harm than good for both parties and hinted that China is reluctant to continue trade negotiations with the U.S. “If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue,” Gao Feng advised.

In politics, the House of Representatives approved the Secure Act in a rare show of bipartisan support. The Secure Act is intended to further entice businesses to offer retirement plans by rewarding small businesses who offer 401k plans, repealing the maximum contribution age (currently 70.5), and permitting part-time employees to become eligible for retirement packages. The next step will be for the Senate to approve the bill.

In business, JP Morgan announced it is prohibiting the pharmaceutical company Perdue from banking with them due to Perdue’s contribution to America’s opioid epidemic. This is part of a growing trend of financial institutions distancing themselves from companies and organizations with questionable reputations or perceived to be contributing to societal concerns. In March, Wells Fargo announced that it would no longer conduct business with privately operated prisons. Similarly, after the deadly Parkland shooting in Florida, Citigroup and the Bank of America declared that they would restrict financing certain automatic firearms.

Best Buy CEO Hubert Joly warned consumers that Chinese tariffs will cause the cost of their products to rise. Despite reporting a 23.7% increase in gross profits during Q1, the tariff concerns were enough to spook investors and the stock fell -4.88% this Thursday.

Global trade uncertainty continued to distress Wall Street at large. The Dow dropped 286.14 points or -1.11% to 25,490.47; S&P 500 lost 34.03 points or -1.19% 2,822.24; Nasdaq fell 122.56 points or -1.58% to 7,628.28; and the Russell 2000 suffered the largest decline of the day, losing 30.25 points or -1.97% to 1,501.38.

The Canadian markets also closed in the red today. The TSX Composite fell 162.74 points or -1% to 16,164.61, and the TSX 60 lost 9.27 points or -0.95%, closing at 969.43.

In Brazil, the Bovespa also declined 450.63 points or -0.48%, to close the session at 93,910.03.

ENERGY:

Artificial intelligence programs from Princeton University are working towards speeding up the development of safe, clean, and virtually limitless fusion energy for generating electricity.

Crude oil plunged today after having the worst day in six months. The US-China trade deal is showing no signs of progress and is partially to blame for oil’s performance.

The oil markets had a mixed day today. Crude Oil decreased 3.71 USD/BBL or -6.04% to 57.7598; Brent decreased 3.77 USD/BBL or -5.31% to 67.2746; Natural gas increased 0.028 USD/MMBtu or 1.10% to 2.5761; Gasoline decreased 0.0873 USD/GAL or -4.38% to 1.9006; and Heating oil decreased 0.0971 USD/GAL or -4.74% to 1.9523.

Top commodity gainers: Orange Juice (1.88%), Coffee (2.07%), Lumber (1.72%), and Rice (1.59%). Top commodity losers: Heating Oil (-4.76%), Crude Oil (-6.33%), Gasoline (-4.43%), and Brent (-5.45%).

The above data was collected around 13:16 EST on Thursday.

BONDS:

Japan -0.05%(+0bp), US 2’s 2.15% (-1bps), US 10’s 2.31%(-6bps), US 30’s 2.75%(-7bps), Bunds -0.08% (-2bp), France 0.28% (-3bp), Italy 2.64% (-11bp), Turkey 19.21% (+16bp), Greece 3.44% (-56bp), Portugal 1.02% (-2bp), Spain 0.85% (-3bp) and UK Gilts 0.95% (-10bp).

  • Spanish 5-Year Bonos Auction decreased from 0.089% to 0.023%
  • Spanish 10-Year Bonos Auction decreased from 0.936% to 0.839%
  • US 4-Week Bill Auction decreased from 2.365% to 2.335%
  • US 8-Week Bill Auction decreased from 2.355% to 2.330%
  • US 10-Year Bill Auction decreased from 0.578% to 0.567%