US stocks advance as inflation data point to further policy stability

  • 14 Mar 2019

    US stocks advance as inflation data point to further policy stability

    US stocks advanced Wednesday after the release of benign inflation data reassured investors that the Federal Reserve is likely to maintain its patient approach to policy changes. The Dow rose 0.6 percent on the day, while the S&P and Nasdaq both gained 0.7 percent.

    US markets

    US stocks advanced Wednesday after the release of benign inflation data reassured investors that the Federal Reserve is likely to maintain its patient approach to policy changes. The Dow rose 0.6 percent on the day, while the S&P and Nasdaq both gained 0.7 percent.

    Boeing fell further late Wednesday after US authorities followed the lead taken by other countries and grounded 737 Max 8 and 9 aircraft in response to the second crash involving one of these planes in less than five months that occurred on the weekend. After the Federal Aviation Administration declared that it still considers these planes to be airworthy earlier in the week, the agency issued an executive order Wednesday afternoon temporarily grounding the Boeing aircraft and announced plans to open further investigation of the possibility of shared cause of the two fatal 737 Max 8 crashes.

    Producer price pressures remained subdued in January, broadly in line with consumer price data released early in the week and likely reinforcing the Federal Reserve’s assessment that there is no urgency to adjust policy settings. Producer prices rose 0.1 percent on the month, up from a decline of 0.1 percent in December and just below the consensus forecast of 0.2 percent, with the year-on-year change easing from 2.0 percent to 1.9 percent. A sharp increase in energy prices was offset by weaker food prices. Excluding these two products, prices rose 0.1 percent on the month and inflation eased from 2.6 percent to 2.5 percent, while if trade services are also excluded, prices again rose 0.1 percent and inflation fell from 2.5 percent to 2.3 percent.

    Headline durable goods orders were stronger than expected in January, increasing 0.4 percent on the month in contrast to the consensus forecast for a drop of 0.6 percent though slowing from revised growth of 1.3 percent in December. Underlying measures were mixed. Excluding transportation equipment, orders fell 0.1 percent, a little weaker than the consensus forecast for an increase of 0.1 percent, but the core measure (nondefense ex-aircraft) beat expectations comfortably, up 0.8 percent compared with the consensus forecast of 0.1 percent. Orders for machinery, computers, communications equipment, aircraft, and electrical equipment all posted solid increases, offset by a decline in orders for vehicles.

    Construction spending rebounded in January, up 1.3 percent on the month after falling a revised 0.8 percent in December and above the consensus forecast for an increase of 0.3 percent. Similarly to the strength in durable goods orders, nonresidential construction spending was solid, up 0.8 percent on the month, with public nonresidential spending also posting a strong increase. Residential spending was mixed, with an increase in spending on multi-family buildings offset by a sharp fall in spending on single-family homes.

    These data reflect observations at 4:00 PM US ET. Gold rose US$12.70 to US$1,310.80 while dated Brent spot crude gained US$0.99 to US$67.66. The US dollar weakened against all other major currencies, with the pound posting a particularly strong gain. The yield on the US Treasury 30-year bond rose 2 basis points to 3.01 percent while the 10 year note rose 1 basis point to 2.61 percent.

    European markets

    European markets closed higher Wednesday ahead of another key Brexit vote in the UK parliament. The FTSE underperformed with an increase of just 0.1 percent on the day, while the CAC and the DAX advanced 0.7 percent and 0.4 percent respectively.

    The pound rallied strongly Wednesday ahead of the UK parliament voting narrowly late in the day to reject leaving the European Union with no deal in place. Prime Minister Theresa May, however, has stressed that the default position remains that the UK will withdraw on schedule at the end of the month. Parliament is now set to vote on Thursday on whether to seek to delay withdrawal. If this vote is rejected, Brexit will likely proceed as scheduled with no deal in place, while if passed the UK government will then seek the European Union’s approval to delay withdrawal.

    The UK government also published updated economic and fiscal forecasts Wednesday. Officials expect the UK economy to expand by just 1.2 percent in 2019, down from the forecast of 1.6 percent growth made last October, but also have revised down their forecasts for public sector borrowing. This has provided scope for the government to increase the amount of additional spending that will be available should a Brexit deal be made from a previously-estimated £15.4 billion to £26.6 billion. This potential fiscal boost may reinforce a modest tightening bias at the Bank of England.

    Consistent with previously published national data, Eurozone industrial production posted a solid increase in January, with stronger output in France, Italy, and Spain outweighing a decline in Germany. Eurozone output rose 1.4 percent on the month, up from a drop of 0.9 percent in December and above the consensus forecast of 1.0 percent, while year-on-year growth picked up from a decline of 4.2 percent to a decline of 1.1 percent. Gains were broad-based across categories, including energy, non-durable consumer goods, and consumer durables. Nevertheless, with PMI surveys indicating conditions in the Eurozone manufacturing sector weakened in February, the apparent improvement in January indicated in today’s report may reflect problems with the seasonal adjustment of the December and January data.

    Asia Pacific Markets

    Most Asian markets fell Wednesday, with Chinese shares continuing their recent pattern of relatively big daily moves. The Shanghai Composite index fell 1.1 percent, while the Nikkei and Topix dropped 1.0 percent and 0.8 percent respectively, and Hong Kong’s Hang Seng index and Korea’s Kospi index both fell 0.4 percent. Taiwan’s TAIEX index and India’s Sensex India outperformed with modest gains.

    Japanese data published Wednesday were mixed. Private sector machinery orders (excluding volatile items) fell 5.4 percent on the month in January after dropping 0.3 percent in December, with the year-on-year change weakening from an increase of 0.9 percent to a decline of 2.9 percent. Officials expect some improvement in the next two months, forecasting orders to fall by only 0.9 percent on the quarter in the three months to March. A survey of conditions in the services sector showed improvement in February, broadly in line with PMI survey evidence. Reflecting a smaller drop in prices of petroleum and coal products, producer prices rose 0.2 percent on the month in February after falling 0.6 percent in January, with the year-on-year change picking up from 0.6 percent to 0.8 percent.

    Looking forward

    Chinese industrial production, retail sales and investment data for February will be published shortly. German and French inflation data will be the focus of the European data calendar, followed by US jobless claims and new home sales data.

    Global Stock Markets
      End 2019DailyPercent Change
     Index2018Mar 12Mar 13ChangeDaily2019Yr/Yr
    North America                
    United States Dow 23327.46 25554.66 25702.89 148.23 0.6 10.2 3.8
      NASDAQ 6635.28 7591.03 7643.41 52.38 0.7 15.2 2.0
      S&P 500 2506.85 2791.52 2810.92 19.40 0.7 12.1 2.2
    Canada S&P/TSX Comp 14322.86 16136.66 16149.97 13.31 0.1 12.8 3.2
                     
    Europe                
    UK FTSE 100 6728.13 7151.15 7159.19 8.04 0.1 6.4 0.4
    France CAC 4730.69 5270.25 5306.38 36.13 0.7 12.2 1.4
    Germany XETRA DAX 10558.96 11524.17 11572.41 48.24 0.4 9.6 -5.4
    Italy MIB 18324.03 20631.19 20749.20 118.01 0.6 13.2 -7.6
    Spain Ibex 35 8539.90 9161.70 9192.70 31.00 0.3 7.6 -5.1
    Sweden OMX Stockholm 30 1408.74 1565.56 1572.80 7.24 0.5 11.6 -0.8
    Switzerland SMI 8429.30 9331.62 9387.43 55.81 0.6 11.4 5.8
                     
    Asia/Pacific                
    Australia All Ordinaries 5709.44 6260.57 6246.01 -14.56 -0.2 9.4 3.4
    Japan Nikkei 225 20014.77 21503.69 21290.24 -213.45 -1.0 6.4 -2.2
      Topix 1494.09 1605.48 1592.07 -13.41 -0.8 6.6 -8.7
    Hong Kong Hang Seng 25845.70 28920.87 28807.45 -113.42 -0.4 11.5 -8.4
    S. Korea Kospi 2041.04 2157.18 2148.41 -8.77 -0.4 5.3 -13.6
    Singapore STI 3068.76 3212.25 3195.59 -16.66 -0.5 4.1 -9.7
    China Shanghai Comp 2493.90 3060.31 3026.95 -33.36 -1.1 21.4 -8.0
    Taiwan TAIEX 9727.41 10343.33 10373.32 29.99 0.3 6.6 -6.0
    India Sensex 30 36068.33 37535.66 37752.17 216.51 0.6 4.7 11.6

    Data Source — Haver Analytics

    Bond markets
    10-Yr Govt BondsClosing YieldChange Yield (bp)
    US 2.61% 1
    UK 1.20% 4
    Germany 0.06% 1
    Japan -0.06% -1
    Australia 1.96% -7

    Source — Bloomberg

    Currencies and commodities
    Currency12-Mar13-MarChange (%)
    Japanese yen 111.31 111.12 0.2%
    Australian dollar 0.7084 0.7095 0.2%
    Yuan 6.7086 6.7071 0.0%
    Euro 1.1296 1.1334 0.3%
    British pound 1.3076 1.3261 1.4%
    Swiss franc 1.0071 1.0029 0.4%
    Canadian dollar 0.7485 0.7520 0.5%

    Source — Bloomberg 

    CommoditiesMar 13Change
    Brent Spot $67.66 1.48%
    Gold $1,310.80 $12.70
    Thompson-Reuters/ Jeffreys Commodity index 190.98 1.17%

    Source — Bloomberg