Global shares: US recovers to end firm; Europe, Asia down in risk-off move

United States

US equities ended higher Monday after recovering from an early risk-off move on Mideast tensions and showing no reaction to news that former national security adviser John Bolton is willing to testify, a twist in the impeachment hearings that may raise pressure for a Senate trial. The Dow industrials rose 0.2 percent, the S&P 500 gained 0.3 percent, and the NASDAQ rose 0.6 percent.

An analyst upgrade lifted Google shares by 2.4 percent, which helped the communications services sector outperform. Markets appeared inclined to downplay the impact of the US-Iran conflict and to focus on expectations for a US-China trade deal, supportive monetary policy, and a resilient global economy. In trade news, the South China Morning Post reported that Chinese officials will travel on Jan. 13 to attend a signing ceremony for the phase-one trade pact on Jan. 15.

Among companies in the news, Exxon Mobil rose 0.8 percent with firmer oil prices despite disappointing fourth-quarter operating results. The Habit Restaurants soared 33 percent on news it would be acquired by Yum, which fell 0.1 percent. Cal-Maine Foods fell 7.8 percent after a quarterly earnings and revenues miss.

In US economic news, Markit's services index ended December at a moderate 52.7, still the best rate of monthly growth going back eight months. New orders posted a five-month high with exports helping, posting their first monthly increase in five months. Hiring also posted a five-month high in a positive indication for Friday's employment report, where solid payroll growth is expected.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 28 cents to US$68.32, while gold was up US$16.80 at US$1,567.50. The US dollar fell against most currencies. The US Treasury 30-year bond yield rose 3 basis points to 2.28 percent while the 10-year note yield rose 1 basis point to 1.80 percent.


European equities slipped Monday as markets reacted to heated rhetoric between the US and Iran after a US air strike killed a top Iranian military commander. The Europe-wide STOXX 600 slipped 0.4 percent, the German DAX fell 0.7 percent, the French CAC was down 0.5 percent, and the UK FTSE-100 declined 0.6 percent.

Oil & gas shares outperformed as oil prices rose again on the threat of supply disruptions. Defensive sectors including food & beverages, telecom, and utilities outperformed. On the downside, airlines led travel & leisure shares lower on rising fuel prices. Lufthansa and Ryanair both fell 1.5 percent, on top of losses Friday. Other losers included basic resources, chemicals, and technology. Among companies in the news, Pandora, the Danish jeweler, rallied 12 percent after saying it would hit its 2019 targets.

In economic news, Eurozone private sector activity expanded at the end of 2019, but not by much. The 50.6 flash PMI composite output index was revised up by 0.3 points but, at 50.9, still indicated little better than stagnation. Separately, UK economic activity again failed to expand at year-end if the updated December PMI survey is correct. At 49.3, the final composite output index was 0.8 points stronger than its flash estimate but only in line with its final November mark and so still short of the 50-expansion threshold.

Asia Pacific

Most major Asian markets closed lower Monday after the release of mixed regional PMI survey data, with investors still focused on the escalation of tensions between the United States and Iran and the associated increase in oil prices. Japanese markets underperformed after they had been closed for trading late last week, with the Nikkei and Topix indices falling 1.9 percent and 1.4 percent respectively, while Hong Kong's Hang Seng index closed down 0.8 percent. The Shanghai Composite index and Australia's All Ordinaries index were both flat on the day.

PMI surveys published Monday showed weaker activity in the Japanese manufacturing sector and China services sector, stronger conditions in the Indian services sector, improved but still subdued economy-wide conditions in Singapore, and a smaller but still substantial contraction in Hong Kong's economy. The Markit PMI survey's headline index for the Japanese manufacturing sector fell to 48.4 in December, below the flash estimate and consensus estimate of 48.8 and confirming a decline from 48.9 in November. The business activity index in the equivalent survey for the Chinese and Indian services sectors fell from 53.5 to 52.5 and advanced from 52.7 to 53.3 respectively. The Markit Hong Kong PMI survey's headline index rose from 38.5 in November to a still very weak 42.1 in December, while the equivalent index for Singapore advanced from 50.4 to a five-month high of 51.0.

Looking ahead*

On Tuesday in Asia, the Japanese composite PMI report is due. In Europe: Swiss CPI, Eurozone HICP, and Eurozone retail sales releases are scheduled. In North America, Canadian merchandise trade and Ivey PMI data are due, plus US factory orders and US non-manufacturing ISM figures will be released.

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