Market Talk – July 31, 2019

Posted Jul 31, 2019 by Martin Armstrong |

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ASIA:

China and US trade talks stalled this week although described as “frank, efficient and constructive” by the White House. Talks are due to resume early September in Washington DC. “The two sides discussed topics such as forced technology transfer, intellectual property rights, services, non-tariff barriers, and agriculture,” the White House said. It said China pledged to buy more U.S. farm goods. Trump yesterday accused China of not buying US agricultural products, but it is thought that after these discussions that the purchasing will pick up. President Trump told reporters, “We’ll see what happens. We’re either going to make a great deal or we’re not going to make a deal at all.”

The US and China are having their differences over Hong Kong, with China accusing the US of creating the violent protests in the region. Chinese Foreign Ministry Spokesperson Hua Chunying also talked badly about US Secretary of State Mr. Pompeo, stating he is acting as if he was the head of the CIA. Hua Chunying said, ‘It’s clear that Mr. Pompeo has put himself in the wrong position and still regards himself as the head of the CIA.”

China today stopped allowing solo tourist from heading to Taiwan as the tensions between the two mount – the law will come into effect tomorrow the 1^st of August.

Japan and South Korean tensions do not seem to be easing. According to a recent article by the Japan Times, both sides are looking at the US to mediate. Whether the US will act as an impartial mediator is to be seen, as the US-Japanese relations always being strong. Former US Senate Mike Mansfield described the relationship as “the most important bilateral relationship in the world, bar none.” Dick Cheney also spoke of the relationship saying that “the U.S.-Japan partnership has become the cornerstone of American security policy in Asia.”

The major Asian stock markets had a mixed day today:

Shanghai decreased 19.83 points or -0.67% to 2,932.51
Kospi decreased 14.13 points or -0.69% to 2,024.55
ASX 200 decreased 32.50 points or -0.47% to 6,812.60
NIKKEI 225 decreased 187.78 points or -0.86% to 21,521.53
Hang Seng decreased 368.75 points or -1.31% to 27,777.75
SENSEX increased 83.88 points or 0.22% to 37,481.12

The major Asian currency markets had a mixed day today:

AUDUSD decreased 0.0032 or 0.47% to 0.6839
NZDUSD decreased 0.0055 or 0.83% to 0.6556
USDJPY increased 0.2370 or 0.22% to 108.8270
USDCNY increased 0.0210 or 0.31% to 6.9096

Precious Metals:

Gold decreased 9.59 USD/t oz. or -0.67% to 1,419.65
Silver decreased 0.242 USD/t. oz or -1.46% to 16.3026

Some economic news from last night:

South Korea:

Industrial Production (YoY) (Jun) decreased from 0.2% to -2.9%
Industrial Production (MoM) (Jun) increased from -1.3% to 0.2%
Retail Sales (MoM) decreased from 0.9% to -1.6%

China:

Chinese Composite PMI (Jul) increased from 53.0 to 53.1
Manufacturing PMI (Jul) increased from 49.4 to 49.7
Non-Manufacturing PMI (Jul) decreased from 54.2 to 53.7

New Zealand:

ANZ Business Confidence (Jul) decreased from -38.1 to -44.3
NBNZ Own Activity (Jul) decreased from 8.0% to 5.0%

Australia:

CPI (YoY) (Q2) increased from 1.3% to 1.6%
CPI (QoQ) (Q2) increased from 0.0% to 0.6%
CPI Index Number (Q2) increased from 114.10 to 114.80
Housing Credit (Jun) remain the same at 0.2%
Private Sector Credit (MoM) (Jun) decreased from 0.2% to 0.1%
Trimmed Mean CPI (YoY) (Q2) remain the same at 1.6%
Trimmed Mean CPI (QoQ) (Q2) increased from 0.3% to 0.4%
Weighted mean CPI (QoQ) (Q2) increased from 0.1% to 0.4%
Weighted mean CPI (YoY) (Q2) remain the same at 1.2%

Singapore:

Bank Lending increased from 681.8B to 687.1B

Some economic news from today:

Japan:

Construction Orders (YoY) increased from -16.9% to -4.2%
Household Confidence (Jul) decreased from 38.7 to 37.8
Housing Starts (YoY) (Jun) increased from -8.7% to 0.3%

Singapore:

Business Expectations (Q2) decreased from 1.00 to -11.00

Hong Kong:

GDP (QoQ) decreased from 1.3% to -0.3%
GDP (YoY) remain the same at 0.6%
M3 Money Supply (Jun) increased from 2.8% to 3.5%

India:

Federal Fiscal Deficit (Jun) increased from 3,661.57B to 4,320.55B
M3 Money Supply increased from 10.3% to 10.6%
Infrastructure Output (YoY) (Jun) decreased from 4.3% to 0.2%

Indonesia:

M2 Money Supply (YoY) (Jun) decreased from 7.80% to 6.80%

EUROPE/EMEA:

The Guardian reported that Boris Johnson has sent his most senior EU advisor David Frost, who is a former ambassador to Denmark and Brexit negotiator, to Brussels to deliver in person his message that the UK will leave without a deal unless the bloc abolishes the Irish backstop. David Frost was told to pass on the PM message in person, “The UK is leaving the EU on 31 October whatever the circumstances. We will work energetically for a deal but the backstop must be abolished. If we are not able to reach an agreement then we will of course have to leave the EU without a deal.” In other news, the UK is taking to the media to convince European governments and its population that the UK is serious about leaving October 31^st whether they reach a deal or not.

Meanwhile, the PM himself was in Northern Ireland today meeting with five main parties to hear their warnings of how damaging a no-deal Brexit would be to the Northern Irish economy. The Republic of Ireland Government also released a report yesterday warning that a 3% hit to the growth rate could happen. There are some talks surfacing amongst parties that a no-deal could lead to the possibility of a united Ireland.

The Iranian foreign minister tweeted today in a mocking tone about US Secretary of State Pompeo’s desire to visit. Pompeo urged for the chance to tell ordinary Iranians the “truth” about how oppressed they currently live. Foreign Minister Javad Zarif tweeted, “Instead of making empty and disingenuous offers, @SecPompeo can accept any of the many requests from Iranian reporters to interview US officials.” Concluding, “He has refused til now, as he knows he has to be accountable to rigourous [sic] questioning—the very same way I am by the US media.”

Iranians who uses Github to store their code are expressing their anger after being locked out of the site due to the international sanctions imposed by the US. Meanwhile, the UAE and Iran met for the first time in six years to discuss maritime security in Tehran.

The major Europe stock markets had a mixed day today:

CAC 40 increased 7.84 points or 0.14% to 5,518.90
FTSE 100 decreased 59.99 points or -0.78% to 7,586.78
DAX increased 41.80 points or 0.34% to 12,189.04.

The major Europe currency markets had a mixed day today:

EURUSD decreased 0.0063 or 0.56% to 1.1091
GBPUSD increased 0.00131 or 0.11% to 1.21621
USDCHF increased 0.0025 or 0.25% to 0.9926

Some economic news from Europe:

Italy:

Italian Monthly Unemployment Rate (Jun) decreased from 9.8% to 9.7%
Italian CPI (MoM) (Jul) remain the same at 0.1%
Italian CPI (YoY) (Jul) decreased from 0.7% to 0.5%
Italian HICP (YoY) (Jul) decreased from 0.8% to 0.4%
Italian HICP (MoM) (Jul) decreased from 0.1% to -1.7%
Italian GDP (YoY) (Q2) increased from -0.1% to 0.0%
Italian GDP (QoQ) (Q2) decreased from 0.1% to 0.0%

Spain:

Spanish Current account (May) increased from -0.41B to 2.70B
Spanish GDP (QoQ) (Q2) decreased from 0.7% to 0.5%
Spanish GDP (YoY) (Q2) decreased from 2.4% to 2.3%

Norway:

Central Bank Currency Purchase (Aug) increased from -600.0M to -500.0M

Germany:

German Retail Sales (MoM) (Jun) increased from -1.7% to 3.5%
German Retail Sales (YoY) (Jun) decreased from 3.8% to -1.6%
German Unemployment Change (Jul) increased from -1K to 1K
German Unemployment Rate (Jul) remain the same at 5.0%
German Unemployment (Jul) remain the same at 2.283M
German Unemployment n.s.a. (Jul) increased from 2.216M to 2.275M

UK:

Nationwide HPI (MoM) (Jul) increased from 0.1% to 0.3%
Nationwide HPI (YoY) (Jul) decreased from 0.5% to 0.3%

France:

French CPI (MoM) decreased from 0.2% to -0.2%
French CPI (YoY) decreased from 1.2% to 1.1%
French GDP (YoY) decreased from 1.2% to 1.1%
French HICP (MoM) decreased from 0.3% to -0.2%
French HICP (YoY) decreased from 1.4% to 1.3%

Eurozone:

Core CPI (YoY) decreased from 1.1% to 0.9%
CPI (YoY) (Jul) decreased from 1.3% to 1.1%
CPI, n.s.a (Jul) decreased from 105.41 to 104.95
GDP (YoY) decreased from 1.2% to 1.1%
GDP (QoQ) decreased from 0.4% to 0.2%
HICP ex Energy & Food (YoY) (Jul) decreased from 1.3% to 1.1%
Unemployment Rate (Jun) decreased from 7.6% to 7.5%

U.S./AMERICAS:

The Federal Open Market Committee (FOMC) voted to lower interest rates by 25 basis points. This marks the first time since 2008 that the FOMC voted to lower rates. “In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent,” according to the official FOMC press release. “This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain.” Chairman Jerome Powell noted that the decision to lower rates was a “mid-cycle adjustment.” U.S. markets interpreted Powell’s statement as a sign that rates will not continue to drop, causing all major U.S. indexes to close lower on Wednesday.

Democratic presidential hopefuls met again last night in Detroit for another debate. Joe Biden is the current leading candidate, according to a poll by Economist/YouGov. Biden currently holds 26% favor of the Democratic voters, followed by Elizabeth Warren who received 18% of the polled voters’ support. Bernie Sanders came in third with 13%, followed by Kamala Harris at 10%, and Pete Buttigieg at 5%. The candidates will meet again this evening for the second round of debates.

Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer commenced their two-day discussions in Shanghai with Chinese trade delegates. Press Secretary Stephanie Grisham announced that the Chinese “confirmed their commitment to increase purchases of United agricultural exports.” According to a report released by the Chinese media the talks were “highly effective” and “constructive.” However, promises have previously been made to secure the purchase of U.S. agriculture. President Trump accused China of backing out of deals at the last minute. Chinese Foreign Ministry spokeswoman Hua Chunying responded by accusing the U.S. of being the one who “flip flops” on deals. It may be a long time coming before a final trade agreement is reached.

U.S. Market Closings:

The Dow declined 333.75 points or -1.23% to 26,864.27
S&P 500 declined 32.80 points or -1.09% to 2,980.38
Nasdaq declined 98.19 points or -1.19% to 8,175.42
Russell 2000

Canada Market Closings:

TSX Composite declined 59.49 points or -0.36% to 16,406.56
TSX 60 declined by 2.62 points or -0.27% to 979.73

Brazil Market Closing:

Bovespa declined 1,120.63 points or -1.09% to 101,812.13

ENERGY:

The EIA said crude oil inventories had declined by 8.5 million barrels in the week to July 26 to a total 436.5 million barrels. Analysts had expected the EIA to report an inventory decline of 1.82 million barrels for the week. This is the second time in the last few weeks where such a decline has taken analysts by surprise. The EIA also reported a draw of 1.8 million barrels of gasoline and an average gasoline production rate of 10.4 million bpd for last week, up from 10.1 million bpd a week before that.

The oil markets had a mixed day today:

Crude Oil decreased 0.02 USD/BBL or -0.03% to 57.9160
Brent increased 0.42 USD/BBL or 0.65% to 65.0601
Natural gas increased 0.101 USD/MMBtu or 4.73% to 2.2335
Gasoline increased 0.0018 USD/GAL or 0.09% to 1.9024
Heating oil increased 0.02 USD/GAL or 0.79% to 1.9575
Top commodity gainers: Natural Gas (4.68%), Bitumen (1.27%), Orange Juice(1.07%), and Heating Oil (0.79%)
Top commodity losers: Ethanol (-2.86 %), Lean Hogs (-4.25%), Rubber (-3.90%), and Corn (-2.67%)

The above data was collected around 15:24 EST on Wednesday.

BONDS:

Japan -0.15%(+1bp), US 2’s 1.81% (-4bps), US 10’s 2.02%(-4bps), US 30’s 2.56%(-3bps), Bunds -0.43% (+1bp), France -0.18% (-4bp), Italy 1.54% (-5bp), Turkey 14.91% (-7bp), Greece 2.04% (-3bp), Portugal 0.35% (-6bp), Spain 0.29% (-7bp) and UK Gilts 0.60% (-3bp).