Global equities gain; greenback rattles currencies, commodities

Oil drops on Fed outlook, ample supply

NEW YORK, Aug 1, (RTRS): The dollar charged to its highest in more than two years on Thursday, trampling almost every market in its way, after the Federal Reserve dampened hopes for a lengthy run of US interest rate cuts.

After the Fed lowered its benchmark rate by 25 basis points, Chairman Jerome Powell said that the central bank’s first rate cut in over a decade was “not the beginning of a long series of rate cuts.”

Markets were expecting a more dovish stance from the Fed and the dollar’s reaction said it all. The dollar index surged to its highest in more than two years, euro/dollar dropped below $1.11 for the first time since May 2017, and Brexit-hobbled sterling hit 30-month lows just above $1.21 .

Stocks in Asia suffered the most from the dollar’s strength, with China’s main indexes down 0.8% and Japan’s Nikkei up under 0.1%.

By the time stocks opened on Wall Street, the dollar’s 0.4% overnight gain had been cut in half and tech shares lead a rally though it didn’t fully make up for Wednesday’s losses.

“It was always going to be a tough job for the Fed to be as dovish as stock markets hoped,” said Chris Beauchamp, chief market analyst at IG, in a note.

The Dow Jones Industrial Average rose 289.74 points, or 1.08%, to 27,154.01, the S&P 500 gained 31.77 points, or 1.07%, to 3,012.15 and the Nasdaq Composite added 129.71 points, or 1.59%, to 8,305.13.

The pan-European STOXX 600 index rose 0.41% with support from bank shares. MSCI’s gauge of stocks across the globe gained 0.47%.

Emerging market stocks lost 0.57%, on track for a seventh straight session of losses. After dropping 1.7% in July, the index is up 6.7% so far in 2019.

MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.62% lower, while Japan’s Nikkei rose 0.09%.

In sovereign debt markets, US Treasury yields fell further after an industry report suggested domestic manufacturing growth slowed to its weakest pace in nearly three years last month.

Earlier, data showed manufacturing activity in the eurozone fell at its steepest rate since late 2012 last month, figures showed.

Benchmark 10-year notes last rose 18/32 in price to yield 1.9606%, from 2.021% late on Wednesday.

The dollar strength notwithstanding, both the euro and the pound were gripped by their own issues. Fears of a no-deal Brexit under Prime Minister Boris Johnson continue to afflict the pound, while the weak data and central bank outlook kept downward pressure on the euro.

The dollar index rose 0.08%, with the euro down 0.13% to $1.106.

Sterling was last trading at $1.2138, down 0.16% on the day.

The Japanese yen strengthened 0.44% versus the greenback at 108.30 per dollar.

The dollar strength and rising US supply sent oil prices sharply lower after a string of gains, while other dollardenominated commodities also fell. The CRB commodity index fell 1.5%.

US crude fell 3.11% to $56.76 per barrel and Brent was last at $63.42, down 2.51% on the day.

US gold futures fell 0.65% to $1,416.90 an ounce. Copper lost 0.33% to $5,907.50 a tonne.

US

US stocks bounced back on Thursday from a steep selloff in the prior session, boosted by technology shares as investors shrugged off a cautious outlook from the Federal Reserve on interest rate cuts and focused on corporate earnings.

The US central bank reduced borrowing costs by a widely-expected quarter of a percentage point on Wednesday, but Fed Chairman Jerome Powell signaled a series of further cuts was unlikely, leading to a sharp selloff on the S&P 500 and Dow.

Despite that, all three major indexes posted their second straight monthly gains in July, closing the book on a month in which the S&P 500 and the Nasdaq reached fresh record highs.

Earnings reports so far have been robust with 355 companies in the S&P 500 that have reported second-quarter earnings, 74.4% have beaten Street estimates for profit, according to Refinitiv data.

The S&P 500 technology sector, Wall Street’s best performer so far this year, rose 2%, recovering from a 1.5% drop in the previous session, helped by shares of Microsoft Corp and Apple Inc.

Verizon Communications Inc rose 1.14%, contributing to a 1.36% gain in the communication services sector, after the wireless carrier beat quarterly profit estimates.

The Dow Jones Industrial Average rose 270.23 points, or 1.01%, to 27,134.5 and the S&P 500 gained 28.29 points, or 0.95%, to 3,008.67.

The Nasdaq Composite added 119.97 points, or 1.47%, to 8,295.39.

Kellogg Co jumped 9.63% after the company beat analysts’ expectations for quarterly sales and profit, driven by higher demand for its snacks in North America.

Qualcomm Inc dropped 2.30% after the chipmaker’s quarterly revenue and profit forecasts missed Wall Street targets.

Among other decliners, the energy sector slid 0.96%, the most among the 11 major S&P sectors, as oil prices declined as rising US output helped keep the market well supplied and on Fed commentary on further rate cuts.

Shares of oil major Exxon Mobil Corp dropped 0.54%, ahead of its earnings report on Friday.

Investors awaited the Labor Department’s nonfarm payrolls data to gauge the strength of the domestic labor market. The report is expected to show private payrolls added 164,000 jobs in July, according to a Reuters survey, after surging by 224,000 in June.

Advancing issues outnumbered decliners by a 1.69-to-1 ratio on the NYSE and by a 2.14-to-1 ratio on the Nasdaq.

The S&P index recorded 19 new 52week highs and five new lows, while the Nasdaq recorded 59 new highs and 53 new lows.

UK

London’s FTSE 100 fell on Thursday as Shell plunged after a profit miss and the US Fed dampened hopes of big interest rate cuts, with gains for two of Britain’s biggest banks easing some of the pain.

Shares in London Stock Exchange Group jumped 5.9% after it announced its $27 billion merger with financial information firm Refinitiv, in which Reuters News parent Thomson Reuters holds a 45% stake.

The FTSE 100 index dipped 0.2% by 0819 GMT, set for its third straight session of losses. The midcap index was largely unchanged with results-driven jumps in medical products maker Convatec and outsourcer Capita supporting the index.

Shell, the most valued company on the FTSE 100, fell 4.3% as its secondquarter profit slumped to a 30-month low due to lower oil and natural gas prices and refining margins. At session lows, the company was set to lose over 10 billion pounds in market capitalisation.

Standard Chartered jumped 3.2% as investors focussed on strong results despite a warning on risks from the USChina trade war. RSA Insurance gained 3% after results, while Barclays added 2.5% after hiking its dividend.

Europe

European shares recovered from early losses on Thursday as a solid batch of bank earnings outweighed the impact of falling expectations of US interest rate cuts and a slump in Shell shares after its worst results in more than two years.

Similarly, Asia-focused lender Standard Chartered rose 4.1% after topping first-half profit estimates, pulling the pan-European benchmark STOXX 600 index 0.2% higher.

The oil and gas sector slid 1%, while the materials index fell 2.5%, with London-listed shares of Rio Tinto slipped inspite of reporting a 12% jump in firsthalf profit and declaring a bumper dividend.

Steelmaker ArcelorMittal revised down its forecast for global steel demand, with a sharper reduction expected in Europe due to a lean automotive market.

Asia

Asian stock markets followed Wall Street lower Thursday after the US central bank cut its key interest rate but left investors uncertain about future reductions.

Benchmarks in Shanghai, Hong Kong, Australia and Tokyo all tumbled.

The Shanghai Composite Exchange lost 0.8% to 2,909.75 and Hong Kong’s Hang Seng shed 0.7% to 27,580.21. Sydney’s S&P-ASX 200 lost 0.3% to 6,793.20 and benchmarks in New Zealand, Taiwan and Southeast Asia also retreated.

South Korea’s Kospi gained 3 points to 2,028.44 and India’s Sensex was down 11 points at 37108.81.

Oil

Oil dropped to around $64 a barrel on Thursday, declining for the first time in six days, after the US Federal Reserve dampened hopes for a string of interest rate cuts and as rising US output helped keep the market well supplied.

The Federal Reserve reduced rates on Wednesday, but against expectations the head of the US central bank said the move might not be the start of a lengthy series of cuts to shore up the economy against global economic weakness.

Brent crude, the international benchmark, fell $1.08 to $63.97 a barrel by 1327 GMT, having dropped as low as $63.73 earlier in the session. US West Texas Intermediate (WTI) crude was down $1.47 at $57.11.

“A relatively upbeat mood in risky assets took a spectacular U-turn after last night’s Fed decision,” Tamas Varga of oil broker PVM said. “The dollar started to strengthen and equities and oil went into a kind of meltdown mode.”

A rising dollar makes oil more expensive for holders of other currencies and tends to weigh on commodities priced in the US currency. The dollar hit a twoyear peak against the euro on Thursday after the Fed decision.

Oil’s drop came despite a bigger-thanexpected decline in US inventories and a fall in OPEC production in July, typically bullish drivers for prices. But US output rose in a market that analysts say is well supplied.

“Supply is plentiful and demand growth is showing signs of weakening globally because of trade conflicts, Brexit and other events that tend to potentially weaken economic growth and, hence, oil demand,” Victor Shum, senior partner at IHS in Singapore, said.

Currencies

The US dollar climbed on Thursday after the Federal Reserve cut rates a day earlier but cautioned it was not necessarily the start of a cycle of monetary loosening, sending the euro to a 26-month low and the British pound to a 30-month low.

The euro weakened to a 26-month low of $1.1025, and sterling touched a 30-month low of $1.2077. However, both the euro and the pound were gripped by their own issues.

Data from the Commodity Futures Trading Commission shows that hedge funds have been doing just that. Short euro positions increased to $5.44 billion in the week to July 26.

Investors expect the European Central Bank to take a more aggressive stance on monetary policy easing than the Fed, which would dampen appetite for the common currency. Fears that Britain may exit the European Union on Oct 31 without transitional trade agreements in place hurt sterling and the euro. The euro was last down 0.13% at $1.1059.