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Jul 31, 2019

EU FX | Dollar hits two-year high after Federal Reserve cuts interest rates by a quarter point as expected

2 minutes




RT: Dollars dollar currency exchange 181203
A trader shows U.S. dollar notes at a currency exchange booth.
Akhtar Soomro | Reuters
The dollar index hit a two-year high on Wednesday as the Federal Reserve cut interest rates after Fed Chairman Jerome Powell said the 25-basis-point cut was not the same as the beginning of a lengthy rate cutting cycle.
The dollar index rose 0.42% to 98.46 in afternoon trading, its highest level since May 2017 when the dollar index hit a high of 98.891.

Some were expecting the Fed to leave the door open for further cuts or even a 50 basis point cut after Wednesday’s meeting, so the less dovish stance sent U.S. stocks to session lows and the dollar index to a more than two-year high.
“The Fed signaled that it is going to be data dependent but markets were priced for a more dovish outlook which the Fed did not deliver on, said Collin Martin, director of fixed income at the Schwab Center for Financial Research in New York.
“Markets were priced for a quarter-percentage-point cut but maybe they were looking for clarity that a second cut would be coming soon, some sort of a calendar based guidance.
Against the euro the dollar was 0.4% stronger, last at $1.111, its strongest level since May 2017.
The yen stood just off three-week lows against the dollar after the Bank of Japan refrained from expanding stimulus, though it committed itself to doing so “without hesitation” if required.
The pound, which has tumbled this week as investors rushed to factor in the growing possibility of Britain leaving the European Union without transition trade arrangements in place, firmed 0.59% to $1.222, crawling back from a 28-month trough of $1.212 plumbed on Tuesday.

Source: CNBC

Bonds Yields Report on Wednesday 31, July 2019 | 10-year yield declined after Fed cuts rates, calls reduction a 'midcycle adjustment'

Thomas Franck




U.S. government debt yields whipsawed on Wednesday after Federal Reserve Chair Jerome Powell said that the central bank’s quarter-point rate cut was simply a mid-cycle “adjustment.”
The Fed decided at its two-day July meeting to cut its benchmark overnight lending rate by one quarter point to a target range of 2% to 2.25%. The central bank also said it would stop reducing the size of its balance sheet, which consists of bonds and mortgage-backed securities it purchased following the 2008 financial crisis.
Wednesday marked the first cut to the federal funds rate since December 2008.
At around 4:04 p.m. ET, the yield on the benchmark 10-year Treasury note, a benchmark for auto loans, mortgages and other lending, settled lower to trade at 2.013%. The 2-year Treasury yield, more sensitive to changes in Fed policy, rose 2 basis points to 1.872%. Bond yields move inversely to prices.
“We’re thinking of it essentially as a mid-cycle adjustment to policy,” Powell said during a press conference after the release.
“When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that,” he added. “You would do that if you saw real economic weakness and you thought that the federal funds rate needed to be cut a lot. That’s not what we’re seeing.”
The Federal Open Market Committee cited “implications of global developments for the economic outlook as well as muted inflation pressures” in making its decision. The policymaking committee said economic growth in the U.S. is “moderate” and the labor market “strong,” but still opted to ease borrowing costs.
“There were two components to success: One was to get the dollar weaker and the other was two get the yield curve steeper. They failed on both measures,” said Jim Caron, Managing Director of Global Fixed Income at Morgan Stanley Investment Management.
“I think the result is that they’re going to cut another 25 basis points again in September, so we’re really talking about semantics,” he added. “What we have to really contend with is that a strong dollar makes you miss on inflation all the more.”
The Fed, which seeks to keep inflation around 2%, has had trouble sustaining price growth in recent months despite a healthy economy and low unemployment. That may hint that the current level of interest rates may be too high even though the benchmark is well below historical norms.
Some economists and Fed officials think that rates need to be lowered in the face of decelerating, but still above-average GDP growth in the U.S. and a gloomier outlook overseas as Washington-led trade wars continue.
Still, others highlight historically low levels of unemployment and more modest economic activity as evidence to hold steady.
— CNBC’s Jeff Cox contributed reporting.

U.S. Markets Overview: Treasurys chart


TICKER COMPANY YIELD CHANGE %CHANGE
US 3-MOU.S. 3 Month Treasury2.072-0.0230.00
US 1-YRU.S. 1 Year Treasury1.9980.0130.00
US 2-YRU.S. 2 Year Treasury1.870.0220.00
US 5-YRU.S. 5 Year Treasury1.822-0.0220.00
US 10-YRU.S. 10 Year Treasury2.011-0.050.00
US 30-YRU.S. 30 Year Treasury2.523-0.0630.00

Wall Street Closing Report on Wednesday 31, 2019 | Dow drops 300 points in worst day since May after Powell hints rate cut not the start of a trend

Fred Imbert



Stocks dropped on Wednesday as Federal Reserve Chair Jerome Powell dampened hopes for further rate cuts later this year.
The Dow Jones Industrial Average traded 250 points lower after falling as much as 478 points at one point. The S&P 500 and Nasdaq Composite both dropped 0.7%.
The Fed cut rates by 25 basis points, matching market expectations. The central bank cited  “global developments ” along with “muted inflation” as reasons for easing monetary conditions.
However, Powell told reporters in a news conference following rate decision that the central bank’s rate cut was a “mid-cycle adjustment, ” hinting that further rate cuts later this year are not a sure thing.
“That refers back to other times when the FOMC has cut rates in the middle of a cycle and I’m contrasting it there with the beginning of a lengthy cutting cycle. That is not what we’re seeing now, that’s not our perspective now,” Powell said.“You have to look at not just the 25 basis-point cut, but look at the committee’s actions over the year.”
“We started off [the year] expecting some rate increases. We then moved to a patient setting for a few months and now we’ve moved here,” he added “As we’ve moved to more accommodative policy, the economy has actually performed as expected with that gradual increase in support.”
Those comments sent equities to their lows of the day, led by momentum stocks such as Microsoft and Amazon. The U.S. dollar also hit its highest level in more than two years against a basket of currencies. The benchmark 10-year Treasury yield jumped above 2.07% before falling back to around 2.02%.
“Our whole story has been the markets are pricing two scenarios. They’re pricing in a 70% chance of two cuts, i.e. a mid-cycle adjustment and a soft landing, and a 30% probability that they cut to zero. That would be the beginning of a rate-cut cycle because we’re going to a recession,” said Mike Collins, senior portfolio manager at PGIM Fixed Income. “The markets are discounting the latter scenario and emphasizing the former.”
However, Powell did suggest this rate move was not necessarily a one-off either.
“He corrected himself. The market was clearly construing his comments to mean the Fed was very much one and done,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities. “In the end, this means more than anything a pick-up in volatility.”
“The trends that hurt the most are in place. Equities are lower, the dollar’s higher and the yield curve is flatter. Before we came into this meeting, these were some of the things we were thinking about the Fed alleviating,” Faranello added. “This is very much a pain trade and the pathway forward is extremely uncertain. The idea for further cuts is clearly on the table but I don’t think it’s a no-brainer by any stretch of the imagination.”
The cut comes amid mixed economic data. U.S. economic growth slowed down to 2.1% in the second quarter. However, that growth rate was better than expected.
“The Fed has capitulated to softer economic growth. Inflation is headed lower, but recession is unlikely,” said David Abramson, chief U.S. strategist at Alpine Macro, in a note. “Policy reflation should put a floor under stock prices and sustain the forward earnings multiple, even as overall profit momentum fades in the coming months.”

Apple rises on earnings

Apple reported Tuesday evening earnings per share and revenue for the previous quarter that topped analyst expectations, sending the stock up 5% on Wednesday. The company also issued better-than-expected revenue guidance for the fourth quarter.
“Overall, when we consider AAPL’s valuation with the company’s fundamental levers for further EPS upside, we see a balanced reward profile relative to the risks,” said Jeriel Ong, an analyst at Deutsche Bank, in a note. Ong added Apple’s “stabilizing” trends will likely give investors more confidence.
Nearly 60% of S&P 500 companies have reported earnings so far. Of those companies, 76% have posted stronger-than-forecast quarterly profits, according to FactSet.
—CNBC’s Sam Meredith contributed to this report.

Source: CNBC

Monetary Policy I Powell says Fed will never move rates because of political factors or to prove its independence

Yun Li



Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee meeting in Washington, D.C., on Wednesday, June 19, 2019.
Andrew Harrer | Bloomberg | Getty Images
Federal Reserve Chairman Jerome Powell said the central bank's rate decision was not a result of political pressure.
"We never take into account political considerations. There's no place in our discussions for that. We also don't conduct monetary policy in order to prove our independence," Powell spoke at a press conference on Wednesday.
The Fed dropped the target range for its overnight lending rate to 2% to 2.25%, or 25 basis points from the previous level, marking the first rate cut since December 2008.
President Donald Trump has been putting increasing pressure on the central bank, even calling for it to deliver a 50 basis point cut just a day ahead of the Fed announcement.
"I'd like to see a large cut, and I'd like to see quantitative tightening immediately stopped," Trump said on Tuesday. "They moved in my opinion far too early and far too severely, and puts me at somewhat of a disadvantage," he added.
However, Powell said the rate cut was essentially "a mid-cycle adjustment to policy," which differs from a "lengthy cutting cycle." The chairman added there was "definitely an insurance aspect" to the cut.

Source: CNBC

Energy I Oil Price Report on Wednesday 31, July 2019 I Oil rises 0.9% after Federal Reserve cuts interest rates a quarter point

2-3 minutes




Reusable: Oil tanker France sunset 151016
Jean-Paul Pelissier | Reuters
Oil prices rose Wednesday after Federal Reserve chair Jerome Powell said the central bank will lower interest rates by 25 basis points as expected.
Brent crude futures rose 46 cents to $65.18 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 53 cents to $58.58 a barrel.
U.S. crude inventories fell by 8.5 million barrels in the week ended July 26, the Energy Information Administration said on Wednesday. Analysts expected a decrease of 2.6 million barrels.
“The report was bullish due to the large crude oil inventory drawdown and strong demand from refiners and drivers,” said John Kilduff, partner at Again Capital Management. “Refiners are running at very high rates, and gasoline demand remains quite high, as the summer driving season persists.”
Libya’s Sharara oilfield, the country’s largest, shut after a problem on Tuesday with a valve on the pipeline linking it to the Zawiya oil terminal. State-owned National Oil Corp (NOC) declared force majeure on loadings of the crude grade on Wednesday.
Saudi Arabia’s oil production fell to 9.6 million barrels per day in July and will stay below 10 million bpd in the coming months, a Saudi oil source told Reuters.
Backwardation in Brent, a market structure in which later-dated contracts trade at lower levels than near-term contracts, has to a large extent evaporated, signaling a well-supplied market despite OPEC-led output cuts and U.S. sanctions on oil producers Iran and Venezuela.
In Shanghai, U.S.-China trade talks are taking place in an effort to end a year-long trade war. Negotiators wrapped up a brief round of trade talks on Wednesday that both sides described as “constructive.”
A Reuters monthly poll showed oil prices are expected to be range-bound near current levels this year as slowing economic growth and a protracted trade dispute curb demand.

Source: CNBC

Gold Price Report on Wednesday 31, 2019 I Gold heads for third monthly gain but dips after Fed cuts interest rates

2-3 minutes



Gold bars at the Austrian Gold and Silver Separating Plant in Vienna, Austria.
Leonhard Foeger | Reuters
Gold prices fell on Wednesday but were still heading for a third straight monthly gain.
The precious metal extended the day's losses slightly after the Federal Reserve voted to cut interest rates by a quarter point for the first time in over a decade, a highly-anticipated but widely-expected move.
Spot gold fell as much as 1% following the Fed's decision but quickly recovered most of the loss, down just 0.3% at $1,426.31 an ounce. U.S. gold futures were down 0.4% at $1431.30 an ounce.
Investors were expecting an interest rate cut by the Fed, as well as by other leading central banks, which would cut the opportunity cost of holding non-yielding gold. The expectation has the precious metal on track for a 1.5% gain for July.
"The metal looks strong for now. In the recent time it has been supported by falling government bond yields. Gold's next moves will be dependent on how dovish the Fed will be today," said Fawad Razaqzada, market analyst with Forex.com.
Fed funds rate futures had fully priced in an interest rate cut of 25 basis points. Backing a dovish policy tilt by the U.S. central bank's policymaking Federal Open Market Committee, U.S. consumer spending and prices rose only moderately in June, pointing to slower economic growth and benign inflation. Industrial and trading services group MKS PAMP said in a note has a "top-side target for bullion" at $1,450 an ounce.
"Aside from the FOMC meeting, there remain a number of ongoing risk events to provide price direction to bullion, namely the increasing likelihood of a no-deal Brexit and a lack of progress between the U.S. and China in trade negotiations," MKS PAMP said.
U.S. President Donald Trump warned China against waiting out his presidency before finalizing a trade deal, saying the outcome could be no agreement or a harsher one if he wins re-election in November 2020.
"So far, because of the fact (bond) yields have been falling and the technical structure has been bullish, traders have been happy to pick gold at the dips. But that could change today" after the Fed meeting, Razaqzada said.

Source: CNBC

Europe Markets Closing Report on Wednesday 31, 2019 | European stocks climb as investors await Fed decision

Elliot Smith



European stocks traded higher Wednesday afternoon as investors awaited an interest rate decision from the U.S. Federal Reserve.
The pan-European Stoxx 600 climbed 0.3%, with the majority of sectors and major bourses in positive territory.
The FTSE 100 in London was the outlier in Europe, slipping around three quarters of one percent as the pound moved away from recent lows.

European Markets: FTSE, GDAXI, FCHI, IBEX

TICKER COMPANY NAME PRICE CHANGE %CHANGE VOLUME
FTSEFTSE 100FTSE7586.04-60.73-0.79574041822
DAXDAXDAX12205.9358.690.4858613620
CACCACCAC5529.5718.500.3444854599
The Fed is widely expected to cut interest rates by a quarter point — which would be the central bank’s first rate cut in over a decade — and the anticipation of monetary easing has supported risk asset prices worldwide.
Trade is also on investors’ minds, after U.S. President Donald Trump took to Twitter to threaten “no deal at all” with China if it seeks to wait out his first term to finalize any trade deal.
U.S. negotiators met with Chinese representatives in Shanghai for the first time since a truce was agreed between President Trump and Chinese President Xi Jinping in May.
The two sides discussed China increasing its purchases of American agricultural goods, according to Chinese state-run media, as well as the U.S. creating “favorable conditions” for China. The next round of high-level talks will take place in the U.S. in September.
On the data front, European Union statistics released Wednesday showed that euro zone economic growth halved in the period from April to June and inflation slowed sharply in July, despite unemployment falling to its lowest in 11 years.
On Wall Street, stocks were little changed ahead of the Fed decision. The Dow Jones Industrial Average was barely below the flatline while the S&P 500 and Nasdaq indexes pointed in opposite directions.

Earnings in focus

Earnings remain in focus as a slew of major European corporates reported results Thursday. Credit Suisse reported a net income of 937 million Swiss Francs ($945 million) for the second-quarter of this year, beating expectations. The bank’s shares climbed almost 3%.
BNP Paribas posted a net profit for the quarter of 2.47 billion euros ($2.76 billion), also beating expectations on the back of strong growth in its corporate and investment banking unit. Shares of France’s largest bank climbed over 2%.
Belgian materials and recycling group Umicore and British retailer Next saw their shares climb by around 10% and 8% respectively following strong earnings announcements.
British property developer Hammerson fell 11% to the bottom of the European blue chip index in afternoon trade after reporting a £319.8 million loss for the first half of 2019.
Air France KLM shares traded 8% higher after its second-quarter earnings and the announcement that members of its pilots’ union had voted in favor of the development of a new low cost airline, Transavia France.

Source: CNBC

Stocks making the biggest moves premarket: GE, Spotify, Garmin, Humana, Apple & more

Peter Schacknow



Check out the companies making headlines before the bell:
General Electric – GE reported adjusted quarterly profit of 17 cents per share, 5 cents a share above estimates. Revenue also beat forecasts, and the company boosted its full-year outlook. GE saw ongoing weakness in its power business, but aviation, oil and gas, and renewable energy revenue grew. Separately, GE announced the impending departure of CFO Jamie Miller, who will stay on until a replacement is found.
Spotify – The music streaming service posted a wider-than-expected loss for its latest quarter, but revenue exceeded estimates. Spotify also reported a 29% jump in monthly active users and a 30% increase in premium subscribers compared to a year ago, although some subscriber metrics were below analysts’ forecasts.
Garmin – The GPS device maker beat estimates by 15 cents a share, with adjusted quarterly profit of $1.16 per share. Revenue also beat forecasts, and Garmin raised its full-year earnings and sales guidance amid improvement in all four of its segments.
Molson Coors – The beer brewer fell 13 cents a share short of estimates, with adjusted quarterly profit of $1.52 per share. Revenue also missed Wall Street forecasts, hurt by unfavorable weather and weak industry demand.
Humana – The health-care company earned an adjusted $6.05 per share for its latest quarter, beating the consensus estimate of $5.31 a share. Revenue also topped forecasts, and Humana raised its full-year earnings guidance on strength in its Medicare Advantage health plan business. Separately, the company announced it will buy back $1 billion in stock from a third party financial institution.
Carlyle Group – The private-equity firm announced it would convert from a publicly traded partnership to a C-corporation effective January 1. It’s the latest PE firm to do so, following rivals like Blackstone, KKR, and Apollo.
ADP – The payroll processing company beat forecasts by a penny a share, with adjusted quarterly profit of $1.14 per share. Revenue also exceeded analysts’ estimates.
Apple – Apple reported quarterly profit of $2.18 per share, 8 cents a share above estimate. Revenue beat forecasts as well. The better-than-expected results came despite a 12% decline in iPhone sales during the quarter.
Gilead Sciences – Gilead beat estimates by 10 cents a share, with adjusted quarterly profit of $1.82 per share. Revenue also came in above estimates. The drugmaker’s bottom line got a boost from improved sales of HIV treatments. Gilead also raised its full-year sales forecast.
Amgen – Amgen earned an adjusted $3.97 per share for its latest quarter, compared to a consensus estimate of $3.59 a share. The biotech giant’s revenue also came in above estimates, as sales of newer drugs helped offset a drop for its older treatments that have gone off patent.
Mondelez – Mondelez matched estimates with quarterly earnings of 57 cents per share, with the snack maker’s revenue slightly above Street forecasts. Mondelez raised its 2019 forecast for organic sales, and also announced a 10% increase in its quarterly dividend.
Electronic Arts – EA reported adjusted quarterly profit of 19 cents per share, compared to a consensus estimate of 1 cent per share. The video game publisher’s revenue also came in above Street forecasts. EA got a boost from the success of its “Apex Legends” game, which helped drive a nearly 20% increase in revenue from the company’s live services.
FireEye – FireEye lost 1 cent per share for the second quarter, surprising analysts who had expected a 1 cent per share profit for the cybersecurity firm. Revenue came in above estimates, but operating expenses were up more than 7%. The company cut its full-year guidance, as it continues its transition to a subscription based model.
Advanced Micro Devices – AMD reported in-line profit of an adjusted 8 cents per share for its second quarter, with the chip maker’s revenue essentially in line. AMD warned, however, that third-quarter revenue would be below analysts’ projections as gaming console chip demand falls.
Yum China – Yum China beat estimates by 7 cents a share, with quarterly profit of 46 cents per share. The restaurant operators revenue was slightly below forecasts, however, and Yum China said it expected sales growth to “moderate” going forward.

Source: CNBC



Employment Cost Index Summary


7-9 minutes


NEWS RELEASE BUREAU OF LABOR STATISTICS U.S. DEPARTMENT OF LABOR

TRANSMISSION OF MATERIAL IN THIS RELEASE IS EMBARGOED UNTIL                                      USDL-19-1386
8:30 a.m. (EDT) Wednesday, July 31, 2019

Technical information:  (202) 691-6199  •  ncsinfo@bls.gov  • www.bls.gov/ect 
Media contact:  (202) 691-5902  •  pressoffice@bls.gov


      EMPLOYMENT COST INDEX – June 2019
      
Compensation costs for civilian workers increased 0.6 percent, seasonally adjusted, for the 3-month period 
ending in June 2019, the U.S. Bureau of Labor Statistics reported today. Wages and salaries increased 0.7 
percent and benefit costs increased 0.5 percent from March 2019. (See tables A, 1, 2, and 3.)

Civilian Workers

Compensation costs for civilian workers increased 2.7 percent for the 12-month period ending in 
June 2019 compared with an increase of 2.8 percent in June 2018. Wages and salaries increased 2.9 
percent for the 12-month period ending in June 2019 and increased 2.8 percent for the 12-month period 
ending in June 2018. Benefit costs increased 2.3 percent for the 12-month period ending in June 2019. 
In June 2018, the increase was 2.9 percent. (See tables A, 4, 8, and 12.)

Private Industry Workers

Compensation costs for private industry workers increased 2.6 percent over the year, compared with a 
compensation cost increase of 2.9 percent in June 2018. Wages and salaries increased 3.0 percent for 
the 12-month period ending in June 2019 and increased 2.9 percent in June 2018. The cost of benefits 
rose 1.8 percent for the 12-month period ending in June 2019 and increased 2.8 percent in June 2018. 
(See tables A, 5, 9, and 12.)

Employer costs for health benefits increased 2.3 percent for the 12-month period ending in June 2019. 
(For further information, see chart 3 and www.bls.gov/web/eci/echealth.txt.)

Among private industry occupational groups, compensation cost increases for the 12-month period ending 
in June 2019 ranged from 2.1 percent for natural resource, construction, and maintenance occupations to 
3.7 percent for service occupations. (See table 5.)

Among private industry supersectors, compensation cost increases for the 12-month period ending in June 
2019 ranged from 1.0 percent for information to 3.6 percent for leisure and hospitality. (See table 5.)

State and Local Government Workers

Compensation costs for state and local government workers increased 3.0 percent for the 12-month period 
ending in June 2019. In June 2018, the increase was 2.3 percent. Wages and salaries increased 2.5 percent 
for the 12-month period ending in June 2019 and 1.9 percent a year ago. Benefit costs increased 3.6 percent 
for the 12-month period ending in June 2019. The prior year increase was 3.1 percent. (See tables A, 7, 
11, and 12.)


Table A. Major series of the Employment Cost Index [Percent change]
Category 3-month,
seasonally adjusted
12-month, not seasonally adjusted
Mar.
2019
Jun.
2019
Jun.
2018
Sep.
2018
Dec.
2018
Mar.
2019
Jun.
2019
Civilian workers
Compensation 0.7 0.6 2.8 2.8 2.9 2.8 2.7
Wages and salaries 0.7 0.7 2.8 2.9 3.1 2.9 2.9
Benefits 0.7 0.5 2.9 2.6 2.8 2.6 2.3
Private industry
Compensation 0.7 0.5 2.9 2.9 3.0 2.8 2.6
Wages and salaries 0.7 0.6 2.9 3.1 3.1 3.0 3.0
Benefits 0.5 0.4 2.8 2.5 2.6 2.4 1.8
State and local government
Compensation 0.7 0.7 2.3 2.5 2.6 3.0 3.0
Wages and salaries 0.6 0.5 1.9 2.3 2.4 2.5 2.5
Benefits 1.0 0.9 3.1 3.1 3.1 3.6 3.6

(1) Includes private industry and state and local government.
(2) Includes wages and salaries and benefits.

The Employment Cost Index for September 2019 is scheduled for release on October 31, 2019, at 8:30 a.m. (EDT).

Information in this release will be made available to sensory impaired individuals upon request— 
Voice phone: (202) 691-5200; Federal Relay Service: (800) 877-8339.

BLS news releases, including the Employment Cost Index, are available through an email subscription service 
at www.bls.gov/bls/list.htm.

Videos and information graphics explaining the Employment Cost Index and how it is used are available at 
www.bls.gov/eci/videos.htm. 

Highlights of recent National Compensation Survey data are available in The Economics Daily at 
www.bls.gov/opub/ted/national-compensation-survey.htm.

An overview of available BLS compensation measures and an interactive guide on choosing among them are 
available at the BLS Commissioner’s Corner on “Making it Easier to Find Data on Pay and Benefits” at 
blogs.bls.gov/blog/2018/10/24/making-it-easier-to-find-data-on-pay-and-benefits.

The PDF version of the news release

News release charts

Supplemental Files Table of Contents

Table of Contents

Last Modified Date: July 31, 2019

Source: BLS


Opinion I Monetary Policy I The Fed's credibility is at stake as it looks to cut rates under pressure from a vocal president

Jeff Cox



If the Federal Reserve fulfills expectations and cuts interest rates Wednesday, it will have to convince the public it is doing so to preserve economic growth and not kowtowing to a very vocal president who is demanding looser monetary policy.
The Federal Open Market Committee and Chairman Jerome Powell have a delicate balance to strike if they approve what markets are betting is a 25 basis point easing.
If the committee presents a reasoned approach to why a cut is necessary just seven months after hiking, it has the potential to execute the move seamlessly.
But if the perception emerges that policymakers are merely looking to mollify President Donald Trump, then the central bank’s credibility, and its veil of political independence, could be torn asunder, resulting in damage that could take years to fix.
After all, the economic signs in the U.S. look good. GDP rose a better-than-expected 2.1% in the second quarter, unemployment is around a 50-year low and consumer metrics, which already had been looking good, are only getting stronger.
Cutting rates has rarely if ever been done in such an environment. Explaining that an easing now is anything but a political move in the face of all of Trump’s demands won’t be easy — even if Powell and Co. think Trump is right.
“How do you window-dress that? How do you explain your actions other than to say the president’s right?” said Fed veteran Christopher Whalen, head of Whalen Global Advisors. “That’s tough for that institution to do that.”
Whalen thinks Powell should stick to the position he set forth last year, which was to adopt a patient stance, allowing a sizable chunk of the bonds the Fed is holding on its balance sheet to run off before moving on rates.
The Fed has drained about $650 billion in a reduction program that started in 2017, but the portfolio of Treasurys and mortgage-backed securities remains at a lofty $3.6 trillion. Many economists expect the FOMC to announce, along with the rate cut, a cessation of the balance sheet runoff, even though it was supposed to end in September anyway.
“You’ve got a relatively weak chairman who is getting beaten up by a very volatile president,” Whalen said. “For the sake of the Fed and their credibility long term, not just now but long term after Trump is gone, they want to take their time.”

A question of independence

Investors should get plenty of clues about where the Fed goes from here in the post-meeting statement, followed by Powell’s usual news conference.
Reporters have questioned Powell repeatedly on what influence Trump’s criticisms have had. He repeatedly has emphasized Fed independence, which Trump and other White House officials have said they respect even if they disagree with policy. The Fed has approved seven rate hikes during Trump’s tenure, and the president has been especially critical of the December quarter-point increase that came amid tightening financial conditions and a wobbly stock market.
The tension, and the ever-present possibility that Trump might one day dump Powell from the chairman’s seat, remains a constant overhang.
Yet another administration deputy, Marc Short, who is Vice President Mike Pence’s chief of staff, called on the Fed to heed the signal of low inflation to reduce rates. Short spoke Tuesday on CNBC.
“The idea that directives for the Fed or running Fed commentary should come from the vice president’s chief of staff I think is a bizarre descent for American democracy,” former Treasury Secretary Larry Summers told CNBC’s Sara Eisen during a “Squawk on the Street ” interview.
“The most important thing that any financial policymaker has is their credibility. If that credibility is sacrificed and their decisions are seen as not based on the facts of the economy but on political pressure, then something hugely important that may be essential when the next crisis comes may be lost,” Summers added.

The reasons to cut

However, Summers, like Whalen, said there is a legitimate case for a cut.
Fed officials are likely to cite several pressing issues that aren’t necessarily serving as major macro forces but are overhangs that could slow growth or even pull the economy into recession. They include uncertainty over trade negotiations, the global slowdown and a lack of inflation that negates the need for restrictive economic policy. On top of that, there is a pronounced slowdown in manufacturing as well as corporate earnings that, while not as bad as expected, remain lackluster.
Putting those ideas into a cogent form would help obviate the political repercussions.
“There are definitely economic reasons for thinking that going back on the December rate increase is a good idea,” said Peter Ireland, a Boston College economics professor and member of the Shadow Open Market Committee of academics who monitor Fed policy. “So I don’t think it’s a situation where the Fed’s credibility is destroyed by any means.”
“I wouldn’t say it’s a make-or-break meeting for Powell or that this is a once-in-a-lifetime exceptional opportunity. It’s kind of more of the same struggling with communication challenges,” Ireland added.
Indeed, the markets will be as focused on what the Fed says as with what it does.
Getting the message across properly will mean not committing to a set policy path, said Ed Keon, chief investment strategist at QMA.
Telegraphing a course of cuts would lend itself to speculation that the Fed was obeying Trump. Approving a cut now and committing to the data ahead would help stanch that talk, Keon said.
“To avoid that perception of outside influence, it’s important that the Fed say that our future decisions are not on autopilot, that we are going to take an objective, clear look at the data as it comes in to decide where we go from here,” he said. “Just reasserting this notion of data dependency, I think it’s important to the future of monetary policy.”




Company Shares | General Electric shares jump 5% beats low earnings expectations as cash flow stabilizes

Michael Sheetz



General Electric shares rose after reporting second-quarter earnings on Wednesday, as its key metric of industrial cash flow stabilizing faster than the company previously forecast.
GE reported adjusted earnings of 17 cents a share, down 6% from the same quarter last year but above the 12 cents a share anticipated by analysts surveyed by Refinitiv. The company also reported lower revenue of $28.83 billion compared to its previous second quarter, which was also a hair above the $28.68 billion analysts surveyed by Refinitiv expected.
The company also said its industrial free cash flow for the second quarter was a negative $1 billion. GE’s metric of industrial free cash flow is closely watched by investors, as it shows what money the company has left over after paying for operating expenses and capital spending. Especially in the case of GE, industrial free cash flow is used as a gauge of efficiency.
Shares of GE rose over 4.1% in premarket trading from its previous close of $10.52 a share.
“We made steady progress on our strategic priorities in the second quarter. Our top-line growth was solid, and Power made meaningful improvements on fixed cost reduction and project execution,” GE Chairman and CEO Larry Culp said in a statement.
GE’s industrial free cash flow appears to be stabilizing near Culp’s forecast earlier this year. Some analysts expected GE would report second-quarter industrial free cash flow between negative $1 billion and negative $2 billion. GE’s filing said industrial free cash flow for the first half of the year was negative $2.2 billion, putting the company close to achieving Culp’s previous forecast of industrial free cash flow for the year between flat and negative $2 billion.
Culp tempered investor expectations for this year in previous comments, as he seeks to turn GE around. The company’s struggling power business “is in a serious turnaround mode,” Culp said in March, and GE expects the market for gas-powered turbines will remain stagnant through 2020.
Despite Culp’s warnings, GE shares are up nearly 45% this year — on pace for its best year since 1999.

Source: CNBC

VoA Video | Democratic Debate Features Clash Between Moderates and Progressives

Asia Market Closing Report on Wednesday 31, 2019 | Asia stocks fall as investors await Fed rate decision, Hong Kong closes early ahead of typhoon

Eustance Huang



Stocks in Asia slipped on Wednesday as investors awaited the U.S. Federal Reserve’s announcement of its decision on interest rates. Meanwhile, markets in Hong Kong closed early as the city braces itself for a tropical storm.
The Nikkei 225 in Japan slipped 0.86% to close at 21,521.53, with shares of index heavyweight Fast Retailing declining 1.96%. The Topix index also fell 0.66% to end its trading day at 1,565.14. Shares of Sony surged 5.31% after the company posted a record first-quarter profit on Tuesday.
Mainland Chinese stocks slipped on the day, with the Shanghai composite shedding 0.67% to 2,932.51 and the Shenzhen component falling 0.77% to 9,326.61. The Shenzhen composite also declined 0.681% to 1,571.30.
In Hong Kong, the Hang Seng index closed early for the day as a tropical cyclone signal was raised to its third highest level. The index fell 1.31% to 27,777.75 as shares of life insurer AIA fell 2%.

Asia-Pacific Market Indexes Chart

TICKER COMPANY NAME PRICE CHANGE %CHANGE
NIKKEINikkei 225 IndexNIKKEI21521.53-187.78-0.86
HSIHang Seng IndexHSI27777.75-368.75-1.31
ASX 200S&P/ASX 200ASX 2006812.60-32.50-0.47
SHANGHAIShanghaiSHANGHAI2932.51-19.83-0.67
KOSPIKOSPI IndexKOSPI2024.55-14.13-0.69
CNBC 100CNBC 100 ASIA IDXCNBC 1008044.37-73.95-0.91
Shares of Chinese property developers slipped after comments from a top decision-making body of the ruling Communist Party Tuesday that housing should be “used for living, not for speculation.” It also stressed that the real estate sector will not be used as a “short-term means of stimulating the economy.”
Hong Kong-listed shares of China Vanke fell 2.15%, while its Shenzhen-listed counterpart declined 3.55%. Sunac China Holdings also dropped 3.63%, while Country Garden Holdings slipped 1.84%.
South Korea’s Kospi closed 0.69% lower at 2,024.55. Shares of industry heavyweight Samsung Electronics dropped 2.58% after the company reported a 56% plunge in its second-quarter profit as compared to a year ago.
Over in Australia, the S&P/ASX 200 slipped 0.47% to close at 6,812.60.
Overall, the MSCI Asia ex-Japan index declined 0.68%.
Meanwhile, consumer prices in Australia rose faster than expected in the second quarter, with the headline consumer price index rising 0.6% in the June quarter. That was above expectations of a 0.5% rise by economists surveyed by Reuters.

China’s factory activity slumps again

China’s factory activity contracted for the third straight month in July, according to official data released earlier on Wednesday.
The official manufacturing Purchasing Managers’ Index (PMI) for July came in at 49.7, according to data from the Chinese statistics bureau. Economists polled by Reuters had expected factory activity in China to edge up to 49.6 from June’s reading of 49.4. A PMI reading above 50 indicates expansion, while those below that signal contraction.

US-China trade, Fed rate decision in focus

U.S. President Donald Trump said in a series of tweets Tuesday that China is not keeping its promise of buying more U.S. agricultural products. For its part, China insists that it has bought U.S. agricultural products.
Trump’s comments come as U.S.-China trade talks are happening in Shanghai from July 30 and 31, as the two economic powerhouses aim to reach a deal to end a protracted trade war.
Meanwhile, the Fed is set to deliver its decision on interest rates later Wednesday stateside, with expectations that it will cut interest rates by a quarter point. Investors will also look for clues from Powell about potential rate cuts later this year. Currently, traders are pricing in at least two rate cuts of 25 basis points before the end of the year, according to the CME Group’s FedWatch tool.
“The Fed has given us zero reason to expect anything except a quarter point rate cut so the change in interest rates will be the least market moving part of the (Federal Open Market Committee) announcement,” Kathy Lien, managing director of foreign exchange strategy, wrote in a note.
“Instead, US dollar traders should be focused on the votes and forward guidance,” Lien said.

Currencies and oil

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 98.034 after slipping from levels above 98.1 yesterday.
The Japanese yen, often seen as a safe-haven currency, traded at 108.55 against the dollar after strengthening from levels above 108.8 in the previous session. The Australian dollar changed hands at $0.6891 after slipping from the $0.690 handle yesterday.
Oil prices rose in the afternoon of Asian trading hours, with the international benchmark Brent crude futures adding 0.87% to $65.28 per barrel and U.S. crude futures gaining 0.69% to $58.45 per barrel.
— Reuters, along with CNBC’s Fred Imbert and Huileng Tan contributed to this report.

Source: CNBC

Politics | Trump’s Racially Divisive Attacks Stoke Base Yet Pose 2020 Risks

By Justin Sink



Donald Trump has long tested the line between keeping his loyal base outraged and aggrieved while preventing mainstream Republicans from bolting his coalition, but his attacks on minority lawmakers risk upsetting the balance and imperiling his re-election.
The president has kept controversy over his racially divisive attacks at a high boil into a third week by leveling criticism at Representative Elijah Cummings, the House Oversight chairman, who represents a majority-black Maryland district Trump called a “disgusting, rat and rodent infested mess.”
For good measure, Trump heaped insults on civil rights activist Al Sharpton after he traveled to Baltimore to defend Cummings, calling him a “con man” who was “looking for a score” and “hates whites.”
Candidates Attend Second 2020 Democratic Presidential Debates
Al Sharpton, center, at the Democratic presidential candidate debate, on July 30.
Photographer: Anthony Lanzilote/Bloomberg
More than half of registered voters now believe the president is racist, according to a poll Quinnipiac University released on Tuesday. That includes 80 percent of black voters, 55 percent of Hispanic voters and nearly six in 10 female voters.
The survey was taken July 25-28, before the bulk of Trump’s remarks about Cummings and Baltimore.
No modern president has so eagerly embraced opportunities to exploit the nation’s racial divisions as Trump. He doesn’t express regret or remorse when his political opponents -- and some allies -- respond with accusations that he or his remarks are racist. But his racial broadsides are now coming at such frequency and volume as to infuse and eclipse all other business and keep the issue foremost in voters’ minds headed into his re-election.

Virginia Speech

On Tuesday, for example, he traveled to Virginia to deliver a routine presidential address at a commemoration of the 400th anniversary of the Jamestown colony’s legislature. But black lawmakers in the commonwealth boycotted the event in protest of his remarks about Cummings and his attacks on four freshman congresswomen of color.
A speaker who preceded Trump, Illinois State Senator Toi Hutchinson, who is black and a Democrat, said in her remarks that “our state legislatures remain places where we come together, even in the most divisive of times, to find solutions to the problems that plague us and serve the people of the United States of America.”
And during his speech, Trump was confronted by a protester who turned out to be a member of the state’s House of Delegates, Ibraheem Samirah, who held a sign reading “go back to your corrupted home.”
Trump said on Tuesday that he’s “the least racist person there is anywhere in the world” and that “there’s no strategy” behind his attacks. “I have no strategy. There’s zero strategy,” he told reporters at the White House.
Later that day, the Washington National Cathedral’s religious leaders -- known for staying above the political fray -- rebuked Trump’s divisive attacks, calling saying they amounted to a “call to action” for white supremacists
Aides and the president himself have said his criticism of Cummings is fueled by Trump’s outrage over the Oversight committee’s investigation into the use of private email by the president’s daughter, Ivanka Trump, and son-in-law, Jared Kushner, who are White House senior advisers. The committee voted last week to authorize subpoenas for work-related text messages and e-mails sent from the couple’s private accounts.
Trump has also assailed Cummings for his fierce criticism of Kevin McAleenan, acting secretary of the Department of Homeland Security, over conditions in migrant detention camps at the U.S. border with Mexico.
Trump said in an interview with CSPAN on Tuesday that he isn’t concerned about being called a racist and named black celebrities who have supported him including musician Kanye West and athletes Jim Brown, Evander Holyfield and Mike Tyson.
“There are people who are racists -- bad people,” Trump said. “But with me, they have a hard time getting away with it. And they don’t get away with it.”

Wavering Support

Support from Trump’s traditional allies is beginning to waver, in what could be a dangerous signal from Republicans who have so far loyally embraced the president despite his zeal for stoking racial tensions.
Representative Mark Meadows, a North Carolina Republican who is a close Trump ally, issued a statement to CNN on Monday defending Cummings, a longtime friend. Senators Lisa Murkowski of Alaska and Shelley Moore Capito of West Virginia -- who just last week accompanied Trump to a fundraiser in her home state -- told the Washington Post they did not agree with Trump’s attacks on Cummings.
The president even complained that normally friendly journalists at Fox News were giving too much airtime to critics who denounced his comments as racist -- including Samirah, who Trump said was the subject of a report after his speech. On Sunday, Fox News host Chris Wallace confronted acting White House Chief of Staff Mick Mulvaney over what he said was a “clear pattern” of racial stereotyping by Trump.
The risk for Trump is that his repeated forays into racial politics could alienate moderate Republicans central to his re-election bid while motivating black voters who stayed home in 2016.
Black voter turnout fell for the first time in a presidential election in 20 years in Trump’s campaign against Hillary Clinton, according to Pew Research Center. A reversal of that trend -- particularly in swing states with sizable black populations, like Pennsylvania, Michigan, and Wisconsin -- could spell trouble for Trump.

Demographic Trouble

Even maintaining the status quo might not be enough. A 2018 analysis by a group of centrist and liberal think tanks including the Center for American Progress showed that if voters from each ethnic group turn out and vote for Trump in the same proportions as 2016, demographic change in the composition of the electorate is enough to tip the Electoral College to Democrats.
But some polling data suggests Trump could weather the storm.
A survey by Fox News published last week found that only one-fifth of Republicans regarded Trump’s tweets about the four freshmen congresswomen as racist. About 93% of Republicans surveyed by Quinnipiac say they believe Trump’s immigration policies are motivated by a sincere interest in controlling the border rather than racism, and only 9% of Republican voters described the president as a racist.
Trump has said black voters should consider his deeds, not his words, when they go to the polls, and he has blamed news media for focusing on his attacks on his minority political opponents while overlooking his accomplishments. He frequently pats himself on the back for low unemployment rates enjoyed by black and Latino workers, for example.
“If the news reported it properly, of all of the things I have done, for African-Americans, like criminal justice reform, like opportunity zones, I think I’d do very well with African-Americans,” he said Tuesday.
— With assistance by Josh Wingrove

Source: Bloomberg


Before The Bell | Dow futures higher as investors anticipate first Fed rate cut in a decade

Sam Meredith



U.S. stock index futures were higher Wednesday morning, as market participants braced for the outcome of the Federal Reserve’s meeting later in the session.
At around 03:30 a.m. ET, Dow futures rose 70 points, indicating a positive open of more than 66 points. Futures on the S&P and Nasdaq were both slightly higher.
The U.S. central bank is widely expected to cut interest rates for the first time since the financial crisis more than a decade ago. Market expectations point to a quarter-point rate cut.
The Fed is set to deliver its decision at 2:00 p.m. ET, with Chairman Jerome Powell scheduled to hold a press conference at 2:30 p.m. ET.
The projected move from the Fed has supported risk asset prices worldwide in recent days. However, trade war concerns have resurfaced to cap gains.
President Donald Trump said in a series of tweets Tuesday that Beijing is not keeping its promise of buying more U.S. agricultural products, decreasing hope that the world’s two largest economies could soon reach a trade deal.
China insists it has bought U.S. agricultural products.
Washington and Beijing agreed to restart trade talks late last month after they fell through in May. The two countries have been engaged in a trade war since last year. In that time, they’ve slapped tariffs on billions of dollars’ worth of each other’s goods.

Economic data and earnings

On the data front, ADP payrolls for July will be released at around 08:15 a.m. ET. Employment cost index figures for the second quarter and Chicago Purchasing Manager Index (PMI) data for July will follow slightly later in the session.
In corporate news, General Electric, Occidental Petroleum and Spotify are among the companies scheduled to report their latest quarterly earnings before the opening bell.
Qualcomm, Vale and Sturm Ruger are among those set to post their results after market close.
— CNBC’s Fred Imbert contributed to this report.

Source: CNBC

Jul 30, 2019

EU FX | Dollar stalls ahead of Fed meeting

3 minutes




reusable: dollar bills 131012
The dollar lacked direction on Tuesday as traders held off on making big moves ahead of the Federal Reserve meeting concluding Wednesday, at which policymakers are expected to cut interest rates for the first time since the financial crisis by 25 basis points.
The move would be a so-called insurance cut to protect the U.S. economy from global uncertainties and trade pressures, in contrast to interest rate cuts by countries facing more imminent risks. Markets will be watching the Fed’s forward guidance for clarity on whether the committee sees the cut as a one-off or as the beginning of a rate-cutting cycle.
“The market is on hold waiting for the FOMC meeting tomorrow. That is expected to be the next driver of price action at a general level,” said Shahab Jalinoos, global head of foreign exchange strategy at Credit Suisse in New York.
The euro hovered on Tuesday around the 26-month low it reached last week of $1.110. Although the Fed is expected to lower rates, U.S. yields will remain above those in the euro zone, making the dollar a more attractive investment for yield-seeking traders.
The pound was the biggest mover in the foreign exchange market, plunging to a new 28-month low of $1.212 in Asian trading on growing concerns that Britain could crash out of the European Union without a transition agreement on Oct. 31.
Sterling was last down 0.33% at $1.217. It was also weaker against the euro by 0.37% at 91.54 pence, having earlier touched a two-year low of 91.88 pence.
“Clearly in the UK, sterling is moving due to local political developments - most importantly the idea that Prime Minister Johnson may not want to meet European leaders unless they change their position, which is a more hard-line stance than the market would have expected as recently as a week ago,” said Jalinoos.
The Japanese yen was last up by 0.21% at 108.54 yen per dollar after the Bank of Japan on Tuesday maintained its pledge to keep short-term interest rates at a negative 0.1% via aggressive bond purchases, as expected.
“The Bank of Japan meeting did not deliver anything materially new. There was a minor change in the wording of the statement, but it does appear that Japan is going to wait and see what materializes from the Fed and ECB before taking action,” said Jalinoos.


US Bonds Closing Report on Tuesday 30, 2019 | Treasury yields fractionally higher ahead of Fed meeting

Elliot Smith



U.S. government debt yields edged higher on Tuesday morning with traders awaiting a monetary policy decision from the Federal Reserve, which at its July meeting is expected to cut to interest rates for the first time in over a decade.

U.S. Markets Overview: Treasurys chart

TICKER COMPANY YIELD CHANGE %CHANGE
US 3-MOU.S. 3 Month Treasury2.095-0.0130.00
US 1-YRU.S. 1 Year Treasury1.985-0.0030.00
US 2-YRU.S. 2 Year Treasury1.846-0.0040.00
US 5-YRU.S. 5 Year Treasury1.8420.0080.00
US 10-YRU.S. 10 Year Treasury2.0580.0030.00
US 30-YRU.S. 30 Year Treasury2.579-0.0040.00
At around 12:03 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was fractionally above the flatline at around 2.068%, while the yield on the 30-year Treasury bond rose to 2.588%.
Market focus is largely attuned to the Federal Open Markets Committee (FOMC) meeting next week, with markets pricing in a 25 basis point cut to interest rates. The Fed will announce its decision on Wednesday.
U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are set to resume in-person trade negotiations with China on Tuesday in Shanghai, though there is little hope of a resolution in the immediate future.
Economic data will also be in focus, with June’s personal income, consumer spending and core inflation data due at 8:30 a.m. ET.
The S&P/Case-Shiller house price index for May is due for release at 9:00 a.m. ET, while June’s pending home sales and July consumer confidence figures will be published at 10:00 a.m. The Dallas Fed’s services index is due at 10:30 a.m. ET.

Source: CNBC

How Did The World Share Markets Close on January 30, 2019

                                     ASIA

Asia markets inch higher ahead of trade talks; Bank of Japan keeps interest rates steady

Eustance Huang


Stocks in Asia Pacific edged up on Tuesday as investors awaited developments from U.S.-China trade talks this week in Shanghai. The Bank of Japan also opted to keep monetary policy steady.
The Nikkei 225 in Japan rose 0.43% to close at 21,709.31, with shares of index heavyweight Fanuc jumping 3.14%. The Topix index added 0.45% to finish its trading day at 1,575.58.
Over in mainland China, the Shanghai composite added 0.39% to close at 2,952.34, while the Shenzhen component rose 0.48% to finish its trading day at 9,399.10. The Shenzhen composite gained 0.452% to close at 1,582.07.
Hong Kong’s Hang Seng index pared losses from Monday to bounce back in early trade following yesterday’s press conference, when Beijing reiterated their firm support for the city’s embattled leader Carrie Lam amid protests over an extradition bill. It also suggested there will not be a change in its management of Hong Kong in the near future. The index was up 0.24%, as of its final hour of trading.
Chinese tech giant Tencent’s shares rose 0.75%, with the company announcing Monday that it would cooperate with Qualcomm on gaming devices and 5G.
In South Korea, the Kospi rose 0.45% to close at 2,038.68 following a slump on Monday, with shares of index heavyweight Samsung Electronics gaining 0.98%.
Over in Australia, the S&P/ASX 200 gained 0.28% to close at 6,845.10 — eclipsing the previous record set in November 2007.
Overall, the MSCI Asia ex-Japan index added 0.21%.
Meanwhile, U.S.-China trade negotiations are set to happen in Shanghai this week as the two economic powerhouses seek to reach a deal to end a protracted trade dispute.

Asia-Pacific Market Indexes Chart

TICKER COMPANY NAME PRICE CHANGE %CHANGE
NIKKEINikkei 225 IndexNIKKEI21709.3192.510.43
HSIHang Seng IndexHSI28146.5040.090.14
ASX 200S&P/ASX 200ASX 2006845.1019.300.28
SHANGHAIShanghaiSHANGHAI2952.3411.330.39
KOSPIKOSPI IndexKOSPI2038.689.200.45
CNBC 100CNBC 100 ASIA IDXCNBC 1008116.955.690.07

Central bank watch

The Bank of Japan kept monetary policy steady on Tuesday but said that it “will not hesitate to take additional easing measures” if the economy loses momentum toward achieving the target inflation rate of 2%.
The Japanese central bank also said it intends to maintain the “current extremely low levels” of short- and long-term interest rates for an extended period of time, at least through around spring 2020. The Japanese yen last traded at 108.64 against the dollar after seeing an earlier low of 108.94.
Government data released earlier on Tuesday showed Japan’s factory output falling more than expected in June.
“In a world whereby we’re seeing synchronized monetary easing, the BOJ has got to keep up with ... the dovish tones going ahead into the second half of this year,” Francis Tan, investment strategist at UOB Private Bank, told CNBC’s “Street Signs” on Tuesday.
The U.S. Federal Reserve is widely expected to cut its benchmark lending rate for the first time since 2008 by 25 basis points. Its rate decision is set to be announced on Wednesday stateside. The European Central Bank last week also signaled a potential rate cut and more monetary easing ahead.
“I think it’s baked in the cake that the Fed is gonna cut 25 basis points, Steve Goldman, managing director at Kapstream Capital, told CNBC’s “Capital Connection” on Tuesday.

Currencies and oil

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 98.167 after rising from levels below 98.0 yesterday.
The Australian dollar changed hands at $0.6900 following declines from levels above $0.702 seen last week.
Oil prices rose in the afternoon of Asian trading hours, as international benchmark Brent crude futures added 0.69% to $64.15 per barrel and U.S. crude futures gained 0.67% to $57.25 per barrel.
— CNBC’s Thomas Franck contributed to this report.


                                                                       Europe

European stocks close sharply lower on US-China trade uncertainty, weak earnings

Elliot Smith


European stocks closed sharply lower on Tuesday as investors digested earnings and renewed U.S.-China trade uncertainty. Market players also positioned themselves ahead to key interest rate decision from the U.S. Federal Reserve.

European Markets: FTSE, GDAXI, FCHI, IBEX

TICKER COMPANY NAME PRICE CHANGE %CHANGE VOLUME
FTSEFTSE 100FTSE7646.77-39.84-0.52847755279
DAXDAXDAX12147.24-270.23-2.18118257935
CACCACCAC5511.07-90.03-1.6190064032
The pan-European Stoxx 600 closed provisionally off by 1.45%. Autos and banks led the losses, both off more than 2%, as all sectors and major bourses traded firmly in the red. Germany’s DAX was among the worst-performing bourses after a series of weak earnings from German corporate giants, trading over 2% lower.
U.S. and Chinese negotiators are set to resume face-to-face trade talks on Tuesday, though expectations of a significant breakthrough this week remain low.
Hopes of a resolution took a further blow on Tuesday as U.S. President Donald Trump unleashed a series of tweets claiming that China is not buying more U.S. agricultural products as it promised to do, and may be slow-walking the talks as it awaits the outcome of the 2020 presidential election.
On Wall Street, stocks fell after the U.S. leader renewed his attacks on China. The Dow Jones Industrial Average fell by around 20 points while the S&P 500 and Nasdaq indexes were also in negative territory.
Investors are also anticipating an interest rate cut from the Fed this week. The U.S. central bank is widely expected to lower borrowing costs on Wednesday by a quarter point for the first time in over a decade.
Back in Europe, the pound hit a 28-month low on Monday as fears of the U.K. leaving the European Union without a deal escalated. Prime Minister Boris Johnson said the current divorce deal was dead and cautioned that unless the EU agreed to renegotiate, Britain would leave without a deal on October 31. The pound is currently trading around $1.2155.

Earnings in focus

Centrica led the loss in Europe after reporting a net loss of £550 million for the first half of the year along with a 49% decline in adjusted operating profit. It also announced CEO Iain Conn will step down. Shares of the company dived 19%.
Siemens Gamesa also plunged, down nearly 18%, after slashing its full-year profitability guidance and reporting a third-quarter margin well below its target range.
U.K.-based BP posted second-quarter underlying replacement cost profit, used as a proxy for net profit, of $2.8 billion, beating the $2.5 billion expected by analysts polled by Reuters and sending the energy company’s stock 3% higher.
Bayer confirmed its outlook for 2019 but struck a slightly less optimistic tone. The German pharmaceutical giant reported earnings before tax, depreciation and amortization (EBITDA) before special items advancing by 25% to 2.9 billion euros. The company now faces 18,400 lawsuits in connection with its weed killer Roundup. Bayer stock fell nearly 4%.
Lufthansa posted a drop in second-quarter earnings on rising fuel costs and price wars, with adjusted earnings before interest and tax (EBIT) falling to 754 million euros from 1 billion euros a year earlier. The airline’s share price slipped 6%.


                                                                                  US

Stocks fall after Trump attack on China dampens hope of a trade deal, Fed meeting looms

Fred Imbert


Stocks fell slightly on Tuesday after President Donald Trump renewed his attacks on China, decreasing hope the two largest world economies will reach a trade deal. Investors also braced for a key announcement on U.S. monetary policy.
The Dow Jones Industrial Average fell 45 points after dropping as much as 151.49 points. The S&P 500 slipped 0.3%. The Nasdaq Composite dropped 0.3%.
Trump said in a series of tweets Tuesday that China is not keeping its promise of buying more U.S. agricultural products. “China is doing very badly,” he wrote. “Worst year in 27 - was supposed to start buying our agricultural product now - no signs that they are doing so. That is the problem with China, they just don’t come through.”
However, China insists it has bought U.S. agricultural products. A U.S. trade delegation flew to China on Monday for negotiations with Chinese officials.
China and the U.S. agreed to restart trade talks late last month after they fell through in May. The two countries have been engaged in a trade war since last year. In that time, they’ve slapped tariffs on billions of dollars worth of each other’s goods.
Kathy Entwistle, senior vice president of wealth management at UBS, said the trade war is weighing down corporate sentiment.
“At the end of the day, the whole tariff conversation hits on a broader picture,” Entwistle said. “If everything is being affected by tariffs and investors are looking at how that’s going to affect a company’s bottom line, then businesses are going to be more conservative” in their outlook.
President Donald Trump gestures as he speaks to members of the press prior to departing from the South Lawn of the White House in Washington, DC, July 24, 2019.
Roberto Schmidt | AFP | Getty Images
Traders also looked to the start of a Federal Reserve monetary policy meeting. Market expectations point to a quarter-point rate cut.
“Considering the strength of the U.S. economy and the Federal Reserve set to lower interest rates, we are witnessing a rotation from the defensive sectors of the market to the aggressive cyclical areas that are more closely tied to a growing economy and would benefit from economic stimulus,” Bruce Bittles, chief investment strategist at Baird, said in a note. “We recommend staying with the strongest areas of the market which include technology, consumer discretionary, financials and industrials.”
The Fed is set to deliver its decision Wednesday at 2 p.m. ET. Fed Chairman Jerome Powell is also scheduled to hold a news conference at 2:30 p.m. ET.
Investors will also look for clues from Powell about potential rate cuts later this year. Currently, traders are pricing in at least two rate cuts of 25 basis points before the end of the year, according to the CME Group’s FedWatch tool.
“Chairman Powell is in a truly terrible situation,” said JJ Kinahan, chief market strategist at TD Ameritrade. “I don’t think there’s anything he can say to truly please people.”
Kinahan said the market does not know if the Powell is on board to ease further after Wednesday. “His path has been more of ‘let’s wait, see what happens and go from there.’ But what the market is saying is ‘you’re going to do it.’”
Meanwhile, earnings season continued as Merck, Procter & Gamble and GrubHub released their quarterly results.
Merck posted earnings and revenue that exceeded analyst expectations, sending the stock up 0.9%. The company said sales of its cancer-treating drug Keytruda surged 58% in the previous quarter.
Procter & Gamble climbed more than 3% and hit an all-time high on the back of fiscal fourth-quarter results that beat analyst expectations. GrubHub, however, fell more than 10% after posting a disappointing profit.
More than 52% of S&P 500 companies have reported quarterly results thus far. FactSet data shows 75% of those companies have posted a better-than-forecast profit.
Tech giant Apple is scheduled to release its results Tuesday after the bell.
—CNBC’s Silvia Amaro contributed to this report.

Source: CNBC


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