Equities retreat as investors eye Fed’s Jackson Hole meet

Crude oil rises further above $60 per barrel

NEW YORK, Aug 22, (RTRS): An index of global stock markets slipped on Thursday as investors worried about uncertainty over the outlook for US interest rate cuts even as weak US manufacturing data raised concerns about the health of the world’s largest economy.

Investors’ focus, however, remained firmly on Friday’s speech by Federal Reserve Chairman Jerome Powell at a Jackson Hole, Wyoming, event, which could offer clarity on the direction of US monetary policy.

The Fed has come under increasing pressure to cut borrowing costs more, including a call by President Donald Trump on Wednesday for the Fed to slash its benchmark rate.

The MSCI world equity index, which tracks shares in 47 countries, was down 0.31%.

On Wall Street, stocks opened higher as strong results from retailers bolstered confidence in consumer demand. But they retreated following the dismal US manufacturing data and a comment from Philadelphia Federal Reserve Bank President Patrick Harker saying he does not see the case for additional stimulus.

At midday, however, the Dow reversed course, helped by a 3.9% jump in Boeing’s shares after a Reuters report that the company has told suppliers it will resume production of its bestselling 737 jets at a rate of 52 aircraft per month in February 2020.

The Dow Jones Industrial Average rose 44.69 points, or 0.17%, to 26,247.42, the S&P 500 lost 4.64 points, or 0.16%, to 2,919.79 and the Nasdaq Composite dropped 39.49 points, or 0.49%, to 7,980.72.

lost 0.40 European shares, which found support from upbeat surveys on Germany and the euro zone, declined on a report that the Bundesbank sees no need for German fiscal stimulus right now. The pan-European STOXX 600 index lost 0.40%.

In currency markets, the US dollar weakened as investors braced for a possible announcement or statement from the Jackson Hole meeting.

The dollar slipped 0.11% against a basket of major currencies to 98.19.

Asian currencies suffered after the Chinese yuan fell to an 11-year low against the dollar, indicating trade tension between the world’s two biggest economies remained a major issue.

Treasury yields, which climbed after better-than-expected manufacturing data in Europe boosted risk sentiment, pared gains following dismal U.S. manufacturing data.

Benchmark 10-year notes were down 5/32 in price to yield 1.5927%, up from 1.577% late on Wednesday. Oil prices weakened as worries about the global economy weighed.

US

US stocks turned lower on Thursday as the first contraction in the manufacturing sector in nearly a decade and uncertainty about future interest rate cuts overshadowed an initial boost from upbeat retail earnings.

IHS Markit said its “flash” survey on new orders for US manufactured goods fell to 49.5 in August, over concerns whether the US-China trade war would tip the economy into a recession. In response, yields on the US two-year Treasury notes again moved above those of 10-Year bonds.

At 11:19 am ET, the Dow Jones Industrial Average was down 7.34 points, or 0.03%, at 26,195.39, the S&P 500 was down 8.07 points, or 0.28%, at 2,916.36. The Nasdaq Composite was down 48.87 points, or 0.61%, at 7,971.33.

Nine of the 11 major S&P sectors were lower with a 0.59% decline in technology weighing the most on the benchmark index. Interest-rate sensitive bank stocks gained as central bankers toned down expectations of aggressive rate cuts.

Leading gains on the S&P 500 was Nordstrom Inc, up 15.4%, as it joined Target Corp and Lowe’s Cos Inc this week in delivering a quarterly profit beat and bolstering confidence in consumer demand.

L Brands Inc slid 7.8% after the Victoria’s Secret owner reported quarterly sales short of estimates.

UK

London’s FTSE 100 fell on Thursday as minutes of the latest US Federal Reserve meeting dampened hopes of a hefty cut in interest rates in September, though NMC Health soared on a report that two firms had offered to buy a stake in the company.

The FTSE 100 fell 0.4%, with shares of online grocer Ocado sliding after a fire at one of its customer fulfilment centres. The FTSE 250 also shed 0.2% by 0754 GMT.

Ocado lost 2% after it reported that a small fire on Wednesday at its customer fulfilment centre in Erith was extinguished overnight. A similar incident in February at its robotic distribution centre in Andover, southern England, had led to a sharp fall in shares.

UAE-based healthcare provider NMC Health surged more than 30% and was tracking its best day ever after sources told Reuters on Wednesday that two groups, including one backed by China’s Fosun, were competing to buy a 40% stake in the company worth up to $1.9 billion.

The company also posted half-year results and announced plans to buy back up to $200 mln worth of shares.

Still, losses on the main index were spread across sectors.

Exporter stocks dropped due to a modest recovery in the pound, while heavyweight financial stocks tracked losses in Asian markets after Fed minutes overnight showed policymakers were deeply divided on an interest rate cut.

Europe

European shares traded close to flat on Thursday as upbeat surveys on Germany and the eurozone offset signs that US policymakers had not intended to start a cycle of interest rate cuts with last month’s move.

Germany’s DAX shrugged off a weak open, to trade 0.1% higher, after Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors, rose to 51.4 in August, above expectations of 50.5.

The data helped the pan-European STOXX 600 index to recover from solid initial losses to trade just 0.1% lower by 0815 GMT, with Italian stocks outperforming with a 0.39% rise.

The biggest gainer on the STOXX was NMC Health Plc, up 26%, after Reuters reported that two groups, including one backed by China’s Fosun, have made competing offers to buy a 40% stake.

Shares of Ambu A/S plunged 15.2%, to the bottom of the STOXX 600, after the company issued its second profit warning in three months.

Asia

In Asia, the Shanghai Composite Index edged up 0.1% to 2,883.44 and Hong Kong’s Hang Seng fell 0.9% to 26,046.47.

Tokyo’s Nikkei 225 was 0.1% higher at 20,612.17. Sydney’s S&P-ASX 200 rose 0.3% to 6,501.08 and India’s Sensex shed 0.5% to 36868.14.

Seoul’s Kospi declined 0.7% to 1,951.01. New Zealand and Taiwan were up while Southeast Asian markets declined.

Oil

Oil rose further above $60 a barrel on Thursday, supported by a drop in US crude inventories and OPEC-led supply cuts, although worries about the global economy weighed.

US crude inventories fell by 2.7 million barrels last week, more than analysts expected. Still, the US Energy Information Administration also said gasoline and distillate inventories rose.

Brent crude rose 24 cents to $60.54 a barrel by 1330 GMT, while US West Texas Intermediate crude added 45 cents to $56.13.

Traders are awaiting a speech from Federal Reserve Chairman Jerome Powell on Friday in Jackson Hole, Wyoming that could indicate whether the central bank will continue to cut interest rates.

“Oil looks in limbo at the moment,” said Craig Erlam, analyst at OANDA. “It’s been steadily rising over the last couple of weeks but not in any convincing way.

“A risk rally at the end of the week may get it moving again but that hangs on Powell.”

The price of Brent is up by about 13 percent this year, supported by supply cuts led by the Organization of the Petroleum Exporting Countries, and export cuts affecting Iran and Venezuela which are under US sanctions.

Iran on Wednesday said if its oil exports are cut to zero, international waterways would not have the same security as before, cautioning Washington against raising pressure on Tehran.

But a slowdown in economic growth amid the US-China trade dispute and Brexit has been pressuring prices and forecasters such as the International Energy Agency have been lowering forecasts for world oil demand.

US President Donald Trump on Wednesday said he was “the chosen one” to address trade imbalances with China, even as congressional researchers warned his tariffs would reduce US economic output by 0.3% in 2020.

Currencies

The pound was on course for its best day in months on Thursday after traders interpreted comments from German Chancellor Angela Merkel to mean that a solution to the Irish border problem could be found before Britain leaves the European Union on Oct 31.

Traders have been betting heavily against the currency this summer and so any glimmer of a breakthrough in Britain’s efforts to convince the EU to renegotiate the deal is likely to send the pound jumping, analysts and traders say.

Merkel on Thursday backtracked on earlier comments that appeared to set Britain a 30-day deadline to find a solution to the so-called Irish backstop. Instead she said that the UK could have time until the Brexit deadline of Oct 31 to find a compromise.

Deciding how to prevent a hard border dividing Northern Ireland from the Republic of Ireland after Brexit is at the heart of Britain and the EU’s inability to come up with a mutually acceptable withdrawal deal.

British Prime Minister Boris Johnson wants the backstop – an insurance policy included in Britain’s Withdrawal Agreement with the EU to avoid the return of a hard border on the island of Ireland – scrapped. The EU says the current plan, which was approved by Johnson’s predecessor Theresa May, is not up for renegotiation.

Sterling jumped to a three-week high of $1.2265 after Merkel’s comments before settling around $1.2251, up 1.1% on the day.

Against the euro, sterling rose as high as 90.29 pence , also a three-week high, and was last up 1.1% at 90.49 pence.

The euro zone equity benchmark swung into positive territory and hit the day’s high after the comments, though it gave back some of the gains afterwards. London’s exporter-heavy FTSE 100 fell as stronger sterling puts exporting companies under pressure.