Date: October 25, 2018
U.S. Stock Futures Climb; Euro Holds Gains on ECB: Markets Wrap
An equities rout that wiped out the year’s gains in U.S. stocks took a breather Thursday, as futures advanced and European shares steadied, even as Asia gauges extended declines. The euro rose after the European Central Bank held its key rate unchanged. Strong earnings results from Twitter, Microsoft and Tesla helped to push S&P 500 futures higher before the start of regular U.S. trading. Intel, Amazon and Alphabet all report after the close. Europe’s single currency rose against the dollar as the ECB said it still intended to cap its bond-buying by year-end. The sentiment was darker in Asia, where shares headed lower for a third day, with Japan’s Topix index falling to the lowest in more than a year. Oil advanced from a two-month low. Sentiment has been tested in October, with global stocks poised for their worst month in more than six years as the effects of trade tensions and geopolitical uncertainty begin to bite. Investors remain apprehensive as a flood of earnings, while mostly stellar, have come with warnings about the future impact of tariffs and rising costs. Central banks remain in the spotlight, with investors speculating what, if any, impact the market uncertainty will have on policy decisions. “What makes the latest volatility more troubling is that it’s been difficult to identify one specific cause,” Kerry Craig, global markets strategist at JPMorgan Asset Management, wrote in a note. “Meanwhile, central banks will continue to get top billing as the Fed pushes on with normalizing interest rates and the ECB is set to end its bond purchase scheme by year end.”
U.S. Capital-Equipment Orders Fall for Second Consecutive Month
Orders placed with U.S. factories for business equipment declined in September for a second month, a sign momentum in capital investment has paused as global trade concerns persist, Commerce Department figures showed Thursday. The report showed declines in bookings for electrical equipment, appliances and components, while orders for computers and electronic products were unchanged. Categories with gains included motor vehicles and parts, as well as machinery. Uncertainty over trade is already cutting into companies’ expected profits and expansion plans, making it a risk to the pace of economic growth. Companies are coping with higher prices for steel and aluminum, and some firms cite tariffs as an investment and growth concern. The data cover orders and shipments affected by tariffs placed on goods by the U.S. and China in July and August. In late September, the U.S. imposed a 10 percent levy on $200 billion in Chinese goods, rising to 25 percent Jan. 1, and Trump has threatened fees on a further $267 billion of merchandise. While business spending has been boosted this year by corporate tax cuts and buoyed by consumption, the latest figures suggest it might be cooling toward the end of the year. Even so, analysts project a 3.3 percent annualized pace of GDP growth in the third quarter, resulting in the best back-to-back periods since 2014; the figures are due Friday. Bookings for civilian aircraft and parts, typically a volatile category, fell 17.5 percent in September following a 63.7 percent gain in the prior month, according to the report. Meanwhile, orders for defense aircraft and parts more than doubled. Boeing Co. previously said that the planemaker received 65 orders in September, down from 99 in August.
ECB Faces Exit Turbulence as Outlook Worsens: Decision Day Guide
Mario Draghi might reflect on the difference a year can make as he and his European Central Bank colleagues meet to discuss a litany of risks facing the euro-zone economy. Twelve months ago, the ECB president was able to cite “unabated growth momentum” after the Governing Council took a large step toward reining in stimulus by cutting monthly bond-buying in half. Policy makers gathering in Frankfurt on Thursday will discuss an economic expansion that’s losing its luster in the face of concerns including Italy’s budget standoff, U.S. protectionism, Brexit and tumbling markets. While the council will almost certainly stick to its plan to cap the asset-purchase program in December, Draghi is likely to stay vague over when interest rates might start to rise. The policy decision will be announced at 1:45 p.m. Frankfurt time, and the president will address reporters 45 minutes later. Here’s a look at the topics on which he’ll probably be quizzed. The ECB has described the risks to the region’s outlook as “broadly balanced” since June 2017, citing solid domestic demand as the main pillar for the upswing. But now, external risks are threatening to undermine economic prospects. Chinese growth slowed more than expected in the third quarter as a trade conflict with the U.S. took its toll. A global sell-off has put Asian stocks into a bear market. And Brexit talks remain deadlocked less then six months before the U.K. is set to leave the European Union, adding the risk of a disorderly rupture with Europe’s key financial center to the list of concerns.
Turkey Hits Brakes on Rates But Doesn’t Rule Out Further Hikes
Turkey’s central bank kept its official borrowing costs on hold but pledged further tightening should last month’s dramatic interest-rate hike fail to curb inflation. The Monetary Policy Committee kept the one-week repo rate at 24 percent on Thursday, in line with the forecasts of all but four of the 29 economists surveyed by Bloomberg. The lira soared. In September, the MPC raised the benchmark by 625 basis points, bringing the total amount of tightening this year to over 11 percentage points. The lira has stabilized and pressure to forge ahead with monetary tightening has eased since Turkey defused a diplomatic standoff with the U.S. this month by releasing an American pastor charged with espionage. Policy makers were probably encouraged by the currency’s performance to wait and see how the rate increases feed through to inflation, according to Halk Yatirim economist Banu Kivci Tokali in Istanbul. “Today’s decision shows the bank won’t hesitate to deliver additional tightening should recent decisions fail to curb inflation and spillovers from the lira increase risks to price outlook,” she said in an emailed note. The Turkish currency was trading 1.2 percent stronger at 5.6375 versus the dollar at 4:01 p.m. in Istanbul, trimming the year’s losses to under 33 percent, according to data compiled by Bloomberg.