New highs for US markets as spotlight turns to China
US stocks continued their earnings driven advance Thursday propelled higher by better than expected results from JPMorgan which boosted the banking sector heading into results from Wells Fargo and Citigroup before the end of the week.
Both the Dow and the S&P 500 traded up to new all-time highs as stocks benefit from enthusiasm that the world economy may be moving into a sweet spot for corporate earnings growth. Low jobless claims for the US reflect a strong economy while economies which are facing some weakness or risks appear to be attracting enough support from governments and central banks to keep people from panicking and shoring up confidence.
Meanwhile, fears that Brexit could spark a financial or economic crisis continue to fade as government and central bankers attempt to balance between showing support for the economy while avoiding hitting the panic button. Newly appointed UK Chancellor of the Exchequer Phillip Hammond for example indicated on taking over that he has no plans to bring in an emergency budget, that he would update plans at the usual Autumn statement and hinting that he is likely to back off on austerity (going in the opposite direction of his predecessor George Osborne), indicating that he is prepared to do whatever it takes to keep Brexit from pushing the UK into a recession.
To the surprise of many, but not myself or my fellow analysts at CMC Markets around the world, the Bank of England did not cut interest rates today, holding the line in an 8-1 vote with only one dovish dissenter (some other people predicting a hold suggested potential for more dovish dissenters). The Bank did indicate that it is seriously looking at a stimulus move for its August meeting. The three week delay on stimulus give the Bank more time to assess the fallout from the Brexit vote on the economy plus the impact of the plunge in the pound, already a big stimulus boost for the UK economy. It went unsaid but holding off also gives the central bankers a chance to meet with the new finance ministry to sort out a co-ordinated response. Because the street had been more dovish, cable has jumped on the news as traders scrambled to get back on side.
As confidence in the potential for economic and earnings growth improves, capital continues to flow out of defensive havens like gold, JPY, bonds and USD, and back into risk markets like stocks, GBP and commodities like oil and copper.
Focus for today now turns to China and its big quarterly GDP report which could have a big impact on sentiment toward China sensitive markets such as copper, crude oil, resource currencies, resource stocks and China indices. Trade figures were disappointing and it’s probably too early for the falling Yuan to have much of an impact. The street is expecting growth of 6.6%. The Hang Seng and copper have been base building just above their 52-week lows lately indicating that expectations appear to relatively low.
Economic numbers out of New Zealand and Singapore may also influence trading in some markets. NZD may continue to digest yesterday’s scheduling of an economic update from the RBNZ on August 4th. JPY could be influenced by ongoing rumours and denials over whether “helicopter money” is on the way or not and talk over other potential stimulus moves on the fiscal or monetary side.
The tone out of Fed speakers this week has been that they are generally encouraged by the growth seen in the US economy lately but even with improving data they remain reluctant to pull the trigger on a rate hike with subdued inflation acting as one of the excuses as FOMC members downplay the potential impact of Brexit on the US.
Tomorrow brings a number of key US economic reports which may give a better indication of how much pressure the Fed is under to raise rates now or if it can hold off until December after the election. Key reports to watch for include retail sales (a sign of the strength of consumer spending) plus consumer prices and average earnings (wage pressures appeared to be increasing in last week’s nonfarm payrolls report).
There have been no major corporate developments after the US close today.
Significant announcements released overnight include:
UK Bank of England interest rate surprise hold at 0.50% a 0.25% cut to 0.25% expected
UK Bank of England vote 8-1 dissenter dovish
US Bank of England QE £375B no change expected
US jobless claims 254K vs street 265K
US producer prices 0 3% vs street 0.0%
US core PPI 1.3% vs street 1.0%
Canada new house prices 2.7% vs street 2.2%
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
8:20 pm EDT FOMC Kaplan speaking
12:00 pm AEST China Q2 GDP street 6.6%
12:00 pm AEST China industrial production street 5.9%
12:00 pm AEST China retail sales street 9.9%
12:00 pm AEST China fixed assets street 9.4%
7:30 am AEST NZ REINZ house sales previous 13.6%
3:00 pm AEST Singapore retail sales street 1.9%
3:00 pm AEST Singapore retail ex auto street (3.4%)
9:30 am BST UK construction output street (3.5%)
10:00 am BST Eurozone trade balance street €25.0B
10:00 am BST Eurozone consumer prices street 0.1%
10:00 am BST Eurozone core CPI street 0.9%
8:00 am EDT BoE Carney speaks in Canada on climate change
8:30 am EDT Canada manufacturing sales street (0.8%)
8:30 am EDT US retail sales street 0.1% vs previous 0.5%
8:30 am EDT US retail ex auto street 0.4%
8:30 am EDT US consumer prices street 1.1%
8:30 am EDT US core CPI street 2.2%
8:30 am EDT US real average weekly earnings previous 1.1%
8:30 am EDT US Empire manufacturing street 5.00
9:00 am EDT Canada existing home sales previous (2.8%)
9:15 am EDT US industrial production street 0.3% vs previous (0.4%)
9:15 am EDT US manufacturing production street 0.3%
10:00 am EDT US consumer sentiment street 93.3
1:00 pm EDT US Baker Hughes drill rig count previous 440
1:00 pm EDT FOMC William speaking
1:15 pm EDT FOMC Kashkari and Bullard speaking
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