Overseas Headlines- October 24, 2018

Date: October 24, 2018

United States:

Stocks Open Mixed After Boeing Beats; Oil Gains: Markets Wrap

U.S. stocks opened mixed as upbeat corporate results from companies including Boeing Co. helped turn the earlier gloomy mood. European stocks rallied, while Asian shares slipped even as China’s gauge climbed. The dollar strengthened as the euro slumped. The Dow Jones Industrial Average led gains among major indexes after its biggest component by weighting, Boeing, rallied after raising its profit forecast. The S&P 500 was hurt by disappointing earnings from Texas Instruments. Retailers were the biggest winners in the Stoxx Europe 600 Index. A turnaround in China’s markets helped the MSCI Asia Pacific Index avoid a bear market even as it edged down. “Right now markets are still trying to reprice,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance. “What’s happening with earnings is exaggerating market moves.” The pound weakened on Brexit worries, and European bonds followed Treasuries higher. The euro dropped following disappointing manufacturing data. Sentiment remains fragile as global shares chart a course for the worst month in more than three years. The cautious mood was further damped by renewed worries over the impact of tariffs after industrial bellwether Caterpillar Inc. warned about rising costs due to higher steel prices. European politics is also in focus, with Italian Prime Minister Giuseppe Conte doubling down on his government’s budget and U.K. Prime Minister Theresa May’s cabinet descending into conflict. “We’ve come up upon a tremendous wall of worry for U.S. stocks and stocks around the world,” David Kudla, chief executive officer of Mainstay Capital Management, said on Bloomberg Television. “Concern among investors is the deceleration in earnings growth.”



Trade Woes Set Up Euro Economy for Disappointing Year-End

Euro-area growth slowed to the weakest in more than two years at the start of the fourth quarter as manufacturers suffered from mounting concerns over global trade. The dismal reading for the Purchasing Managers’ Index comes a day before European Central Bank policy makers meet to review the risks facing the economy and their pledge to cap bond buying in December. Ebbing confidence could damp their optimism about momentum in the region. The composite PMI from IHS Markit dropped to 52.7 in October from 54.1 in September. The reading was below all estimates in a Bloomberg survey of economists, though it still indicates quarterly growth of 0.3 percent. The decline was led by manufacturing, where output growth was the weakest since December 2014. In Germany, the euro zone’s biggest economy, factory growth slowed sharply and the composite measure — which includes services — dropped to the lowest in more than three years. Phil Smith, an economist at IHS Markit, described the data as “unpleasant.” The market reaction was also clear, with the euro falling to the lowest in two months. It was down 0.5 percent to $1.1420 as of 10:32 a.m. Frankfurt time. “The survey will make for uncomfortable reading at the ECB,” said Chris Williamson, an economist at IHS Markit. “The headline PMI has fallen to a level which would historically be consistent with a bias toward loosening monetary policy.”



Companies Say They’re Ready to Move Supply Chains From China

Earnings reporting season is underway, and analysts are eager to hear from executives about how an escalating trade war between the U.S. and China is impacting their businesses. A common theme is that they are ready to relocate supply chains if the cost of importing Chinese goods becomes prohibitive. U.S. President Donald Trump imposed a 10 percent tariff on $200 billion of Chinese imports in September — following an earlier round of tariffs on $50 billion of goods — and promised to raise the duty to 25 percent in January. He’s also threatened to expand the levy to all products imported from China — an amount that totaled $531 billion in the 12 months through August, according to the latest data from the U.S. Department of Commerce. “If there was a broad-based tariff on apparel, I think you could see a bit more of an acceleration of the migration out of China into other regions for apparel sourcing,” Mitch Butier, chief executive officer of the California label producer, said during an Oct. 23 earnings call. “That will take time. They’re just a huge infrastructure within China. That will take some time.” “Especially light manufacturing, factories move very quickly. A number of them have already moved out of China,” Jean-Jacques Ruest, CEO of the Canadian railway company, said during an Oct. 23 earnings call. “They’re going to Vietnam. They’re going to Bangladesh. They’re going to Indonesia. And the product is still being made.” “It’s made or being made in other countries, which still basically are there to field the demand of the people who need the products,” the executive said. “So overall, we’re very bullish about trade from Asia — trans-Pacific trade from Asia to North America in 2019 — but it might be coming from different countries, or different port of origin.”