Global shares: US, Europe better on US-China trade headlines; Asia mixed

Fidelity International Global recently published this article today, (November 18, 2019).

US markets

US equities rose Friday after upbeat comments on prospects for a US-China trade deal from White House economic adviser Larry Kudlow. The Dow industrial average and the S&P 500 both rose 0.8 percent, and the NASDAQ gained 0.7 percent.

Kudlow said the US and China were close to agreement, and a separate report in Politico said the US was likely to extend a waiver for rural US telecom firms to buy equipment from Huawei, the Chinese telecom, another signal suggesting a trade rapprochement.

Among companies in the news, semiconductor bellwether Applied Materials rallied 8.9 percent on positive earnings and revenue surprises, and on Q1 guidance above market expectations. Most semiconductor shares tracked Applied Materials higher, with an extra boost from the positive US-China trade news. However, Nvidia Corp., another chip-maker, weakened 2.7 percent on disappointing Q4 revenue guidance. RH, formally Restoration Hardware, rose 7.6 percent after Berkshire Hathaway announced a 6.5 percent stake in the company.

Among sectors, health care outperformed, led by gains in big pharma stocks Pfizer, up 2 percent, and Johnson & Johnson, up 3.1 percent. Energy stocks were winners on the trade news, with Apache, the exploration and production company, up 2.1 percent, and supermajor ConocoPhillips up 1.8 percent. Consumer discretionary shares lagged, with fast-food restaurant stocks and homebuilders lower.

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In US economic news, October retail sales rose 0.3 percent but ex-auto sales, which were thought to prove stronger, proved a little less solid than the headline at a 0.2 percent gain. In a separate report, the effects of the now resolved GM strike made a strong appearance in industrial production data and are largely responsible for two straight monthly contractions, at a much deeper-than-expected minus 0.8 percent in October following a revised minus 0.3 percent in September.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude oil rose 98 cents to US$63.32, while gold fell by US$3.80 to US$1466.90. The US dollar declined against most major currencies, but it rose against the yen and Swiss franc.  The US Treasury 30-year bond yield was unchanged at 2.31 percent, and the US 10-year note yield rose 1 basis point to 1.84 percent.

Major European equities indexes perked up Friday after Larry Kudlow, the White House economic adviser, said a trade deal with China was close. The Europe-wide STOXX 600 rose 0.4 percent, the German DAX rose 0.5 percent, the French CAC was up 0.6 percent, and the UK FTSE-100 edged up 0.1 percent. 

Gains in the export-heavy FTSE-100 were limited by sterling’s rise as UK political news pointed to a victory for the pro-Brexit Conservatives in upcoming elections. UK domestic mid-cap shares outperformed, up 0.9 percent on the domestic political picture, with homebuilders leading.

Trade sensitive commodities and technology stocks led the gains, with utilities and telecom lagging. Semiconductor shares showed special strength on the trade news, and after Applied Materials, the US microchip leader, issued a positive forecast for early 2020. ASML Holding, the Dutch chipmaker, was up 2.1 percent, and Infineon, the German semiconductor firm, rose 0.9 percent. UK mining shares managed to rise on the trade news. Gains in automakers were limited as markets await word from President Trump on pending tariffs on European auto imports.

In economic news, Eurozone inflation fell again in October. The flash HICP was revised just marginally softer in the final report and now shows a 0.1 percent monthly rise. However, this left the annual rate at 0.7 percent, in line with its preliminary print and so just short of its 0.8 percent final September mark. It was also its lowest reading since November 2016.

Asia Pacific markets

Asia markets were again mixed Friday, with significant variation also posted over the week. The regional data calendar was light Friday, while US-China trade news was also limited. Australia’s All Ordinaries index was among the strongest performers in the region on the day and on the week, with gains of 0.8 percent and 1.0 respectively, while Japan’s Nikkei and Topic indices both closed up 0.7 percent on the day but both closed down 0.4 percent on the week. The Shanghai Composite index fell 0.6 percent on the day and 2.5 percent on the week. Hong Kong’s Hang Seng index was flat on the day but fell 4.8 percent on the week, with no signs of any resolution to the ongoing civil unrest ahead of the weekend.

Final Hong Kong GDP data for the three months to September published after the trading session showed no change from preliminary estimates published last month and confirm the economy contracted for the second consecutive quarter, meeting the technical definition of a recession. GDP fell 3.2 percent on the quarter, the biggest drop since the start of 2009, after a decline of 0.4 percent in the three months to March. Year-on-year growth also slowed sharply, down from an increase of 0.5 percent in the three months to June to fall of 2.9 percent in the three months to September, again the weakest since 2009. Chinese data published earlier in the day showed house prices growth slowed for the fifth month in a row, up 7.8 percent on the year in October after increasing 8.4 percent in September.

Looking forward

The following indicators will be released this week...

Global stock markets

North America

Europe

Asia/Pacific

Bond markets

Currencies and commodities