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On 13 July, 2017 - Shares rallied on the Fed chair’s dovish tone

Anne D Picker, Econoday

Investors are turning their attention to earnings reports.

United States

US shares were higher Thursday with the Dow Jones industrials closing at another new high. The Dow edged up 0.1 percent while both the S&P and Nasdaq added 0.2 percent. Traders seemed reluctant to make more significant moves ahead of the release of several key economic indicators and earnings news on Friday. Financials gained before profit reports from major banks including JPMorgan Chase, Wells Fargo and Citigroup on Friday. The S&P healthcare index edged up. It showed little reaction to the latest US Senate revised healthcare bill.

Delta Air Lines was lower after it reported a 21 percent drop in second-quarter profit because of sharply higher operating costs, despite higher passenger unit revenue. Target advanced after it posted an upbeat second-quarter forecast. The news boosted other retailers including Wal-Mart and Costco. Shares of Apple, Microsoft and Alphabet provided the biggest upward boost to the S&P and the Nasdaq.

June producer price index for final demand inched up by 0.1 percent following May’s unchanged reading. Excluding food and energy prices, the core PPI also crept up by 0.1 percent after climbing by 0.3 percent in May. Weekly jobless claims declined 3,000 to 247,000.

Fed Chair Janet Yellen delivered her second day of Congressional testimony, this time to the Senate Finance Committee. She conceded that wage pressures are weak but warned that it is premature to conclude that inflation trends are falling back below 2 percent. In other remarks, the Fed's chair, like she said in her first day of testimony, declined to say how low the Fed's balance sheet will be reduced to, saying only that she expects the Fed's reserves, currently at $4.5 trillion, to be reduced substantially. She also repeated that it is the FOMC's goal to hold only Treasuries on the Fed's balance sheet (the Fed currently owns $1.8 trillion in mortgage-backed securities).

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up 10 US cents to US$1,218.90. Copper futures were down 0.6 percent to US$2.67. WTI spot crude was up 54 US cents to US$46.03. Dated Brent spot crude was up 64 US cents to US$48.38. The US dollar was up against the yen, euro and the Swiss franc. The currency declined against the pound and the Canadian and Australian dollars. The Dollar Index was virtually unchanged. The yields on both the US Treasury 30 year bond and on the 10 year note were up 2 basis points to 2.91 percent and 2.34 percent respectively.

Europe

The European markets were mixed Thursday after rallying on Wednesday sparked by Federal Reserve Chair Janet Yellen's comments about gradual policy tightening yesterday which soothed fears that the Fed was moving too fast. Investors remained focused on Yellen's continued testimony before the Senate Banking Committee today. The FTSE was virtually unchanged (down 3.49 points), the CAC and DAX added 0.3 percent and 0.1 percent respectively while the SMI slipped 0.1 percent.

Daimler dropped after reports that it sold over 1 million cars with excessive emissions in the European and US market. Osram Licht gained after the company confirmed media reports that it has held negotiations with Continental regarding the formation of a joint venture for intelligent lighting solutions in the automotive segment. Continental also advanced.

Gerresheimer declined after reporting that its net income from continuing operations for the second quarter declined to €25.1 million from €28.9 million a year earlier. Areva rose after the French state completed its €2 billion capital increase in the nuclear engineering and construction firm. Alstom advanced after reporting a 6 percent rise in first quarter sales. AstraZeneca retreated on reports that its chief executive is leaving. Marks & Spencer and Next made solid gains following stronger results reported by French supermarket Casino. Ocado gained on a broker upgrade.

Asia Pacific

Most Asian stocks indices advanced Thursday, tracking gains in the US and Europe during the Wednesday global market day. Fed Chair Janet Yellen's comments about gradual policy tightening soothed investors’ fears. In the first day of her testimony to Congress, Yellen on Wednesday reiterated the Fed's plans to raise rates and gradually reduce the size of its $4.5 trillion balance sheet. She said the policy fed funds rate did not have to increase all that much further to get to a neutral policy stance.

The Shanghai Composite added 0.6 percent while the Hang Seng added 1.2 percent. China's exports increased at a faster than expected pace in June. In US dollar terms, exports were up 11.3 percent on the year. Imports surged 17.2 percent from a year ago. The Hang Seng was up 1.2 percent to a fresh 2 year high as investors responded positively to China's solid trade data and Federal Reserve Chair Janet Yellen's signal to adopt a patient approach in the current US monetary policy.

The Nikkei edged up 1.43 points while the Topix lost 0.23 point. Lower bond yields dragged down banking stocks and the yen was up, hurting exporters’ shares. Automakers Toyota and Honda Motor dropped on a slightly firmer yen as Yellen sounded less hawkish than expected. Toshiba slumped after the Asahi newspaper reported the company was informed by its auditor that it would not provide an opinion or endorsement for its final report. Mitsubishi UFJ Financial and Sumitomo Mitsui Financial were lower. Tokyo Electron rallied.

Both the S&P/ASX and All Ordinaries added 1.1 percent after the Dow hit a fresh record closing high. The rally was led by financial, healthcare and retail stocks. ANZ, Commonwealth, NAB and Westpac advanced. In the healthcare sector, Cochlear and CSL rallied. Whitehaven Coal gained after unveiling its full-year output figures. Retailers Woolworths, Wesfarmers and Harvey Norman climbed.

The Kospi was up 0.7 percent after low inflation enabled the Bank of Korea to keep its benchmark interest rate unchanged at a record low 1.25 percent for an 11th straight month. The Sensex added 0.7 percent to reach a fresh record high, as weak inflation and industrial output data added to pressure on the Reserve Bank of India to reduce interest rates.

Looking forward

India releases June merchandise trade data and WPI. Eurozone and Italy post May merchandise trade. In the US, June consumer price index, retail sales and industrial production will be released along with May business inventories and July preliminary consumer sentiment.

Global Stock Markets

Global Stock Markets

*Note — all releases are listed in local time.

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