Global shares: US firms on trade hopes; Europe softer on autos; Asia gains

United States

US equities edged up Monday in quiet trading amid optimism about US-China trade as the two sides are scheduled to sign an interim accord on Wednesday. The Dow industrials rose 0.3 percent, the S&P 500 gained 0.7 percent, and the NASDAQ was up 1.0 percent.

The bullish backdrop for risk assets was supported Monday by Treasury Secretary Steven Mnuchin's comment that the US-China pact will include Chinese commitments to buy US farm goods, and a Bloomberg report that the US will remove China from its list of currency manipulators. Risk assets got a lift from relief that the US-Iran dispute has not exploded into war.

Markets expect a firm start to the US quarterly earnings season with big banks scheduled to report on Tuesday, including Citigroup and JP Morgan. Earnings expectations have been bolstered by a perception that the global economy remains resilient, while central banks are in no rush to withdraw accommodative policies. A series of holiday sales updates from retailers Monday added to positive sentiment.

Big tech momentum darlings led the gains Monday, with Apple up 2.1 percent, Microsoft up 1.2 percent, Amazon up 0.4 percent, Netflix up 3 percent, Facebook up 1.8 percent, and Google up 0.8 percent. Tesla, the electric automaker, rallied 9.8 percent on an upgrade from Oppenheimer and favorable news about Chinese subsidies for electric vehicles.

Among sectors in the S&P 500: materials, technology, REITs, and industrials led the gains, while health care lagged.

Among companies in the news, Lululemon Athletica rose 4.4 percent after raising its Q4 revenues and earnings guidance on strong holiday sales. Wesco International, an electronics distributor, declined 2.9 percent after announcing it would buy its competitor, Anixter International, which fell 0.5 percent.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 84 cents to US$64.14, while gold fell US$10.70 to US$1,551.30. The US dollar was mixed against major currencies. The US Treasury 30-year bond yield rose 2 basis points to 2.30 percent while the 10-year note yield rose 2 basis points to 1.84 percent.


European equities mostly weakened Monday with auto stocks depressing the market. The Europe-wide STOXX 600 declined 0.2 percent, the German DAX fell 0.2 percent, the French CAC eased 0.02 percent, and the UK FTSE-100 rose 0.4 percent.

UK stocks were an outlier, as they were bolstered by expectations for a Bank of England rate cut after weak UK economic data and dovish comments from BOE officials. Among sectors in the STOXX 600, basic resources, utilities, and real estate outperformed, while autos, telecom, banks, and travel & leisure lagged.

Auto stocks sold off after a poor sales report from the Chinese Association of Auto Manufacturers, which said sales fell 8 percent in 2019. Renault shares were hit by a Financial Times report that its cost-sharing alliance with Nissan may collapse without Carlos Ghosn leading it. Bank stocks also suffered, led by declines in Spanish and Italian banks.

In economic news, the UK economy was unexpectedly weak in November. Real GDP contracted 0.3 percent on the month, its worst performance since last April. However, revisions ensured that 3-monthly growth remained positive at 0.1 percent, albeit down from an upwardly adjusted 0.2 percent in the August-October period. Meanwhile, UK goods output declined a much steeper than expected 1.2 percent in November which, even after an upwardly revised 0.4 percent gain in October, was enough to reduce annual growth from minus 0.6 percent to minus 1.6 percent, equaling its weakest reading so far in 2019.

Asia Pacific

Most major Asian markets closed higher Monday, with the regional data calendar light but sentiment broadly positive ahead of the signing of the phase-one US-China trade deal later in the week. Hong Kong's Hang Seng index outperformed with a gain of 1.1 percent, while the Shanghai Composite index closed up 0.8 percent. Japan's Nikkei and Topix indices advanced 0.5 percent and 0.4 percent respectively. Australia's All Ordinaries index underperformed, falling 0.3 percent on the day with energy shares posting heavy losses.

India's consumer price index increased by 7.35 percent on the year in December, up sharply from 5.54 percent in November, and is now at its highest level since 2014, mainly reflecting a further acceleration in food prices. Headline inflation has risen in each of the last five months and is now above the Reserve Bank of India's target range of 2.0 percent to 6.0 percent for the first time since 2016. The RBI left its main benchmark rate unchanged at a nine-year low of 5.15 percent at its policy review held early December after a cumulative cut of 135 basis points at its previous five meetings. The further increase in headline inflation above the target range seen in December will likely reinforce the case to extend a pause at the RBI's next policy meeting in February.

Looking ahead*

On Tuesday in Asia/Pacific, Chinese merchandise trade and yuan loan data and Indian WPI figures are scheduled. In North America, releases are scheduled for the following: US CPI and US NFIB small business optimism.

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