Inflation Data Firms, Thomas Cook Falls 46%, China’s Industrial Production Is Better Than Expected

Global markets rebound on FOMC rate cut hopes and firming economic data.
Thomas Hughes
S&P 500 daily chart, July 12, 2019

The U.S. Futures Are Up On Rate Cut Hopes

The U.S. markets are edging higher in early Friday trading as rate cut hopes buoy sentiment. The Dow Jones Industrial Average is up about 0.30% while the S&P 500 and NASDAQ Composite are up about 0.20%. Jerome Powell’s testimony to Congress was mostly as expected, the Fed chief cited risks to the economy and paved the way to an interest rate cut later this month.

The caveat is that data continues to roll in. Today’s PPI figures are mixed, the headline 0.1% and core-level 0.4% MoM gains are both better than expected. The YoY 1.7% and 2.1% are also a bit on the hot side if down from the previous month. The CME FedWatch Tool continues to show a 100% chance for a rate cut this meeting, the odds for a deep 50 bps cut continue to fluctuate at low levels.

While not making big headlines, earnings season kicks off next week with reports from the big banks and many other S&P 500 names. The expectations are low although analysts estimates have not fallen as much as in previous quarters. Regardless, the outcome of next week’s reports are pivotal for the market. The outlook, in particular, will be closely watched yet not likely to provide much clarity due to trade-war concerns.

EU Markets Mostly Higher, Thomas Cook Tanks

The EU indices are mostly higher in early Friday trading. The DAX is the laggard and trading with virtually no change from Thursday’s session. The FTSE is marginally higher at 0.1% while the French CAC is up about 0.40%. The biggest headline in the region concerns shares of Thomas Cook. There are reports a Chinese travel firm is in talks with the companies creditors to inject 750 million pounds into the travel firm. Shares of the stock immediately headed lower and shed more than 45% before bottoming. The move puts Thomas Cook at it lowest level ever.

Shares of Daimler are also moving lower at midday. The company issued a profit warning that sent shares down nearly -1.5%. Shares of Deutsche Bank continue to rebound. The bank received a much-needed upgrade from UBS that cites turn-around efforts and valuation.

On the economic front, EU industrial production beat expectations by rising 0.9% in the last month. Analysts had been expecting only 0.2%, the 0.7% margin is enough to offset weakness in the past two months. The new data shows EU production stalled in the spring but the hiccup was short-lived.

Chinese Import/Export Data Is Mixed

Asian markets were mostly higher in Friday trading. The Shanghai Composite is in the lead with a gain of 0.44% after better than expected export data. The countries exports fell only -1.3% versus an expected -2.0% as foreign demand stabilizes. The import data, however, fell -7.3% which is -2.0% more than expected. The Australian ASX is the only index to post a loss. The Hang Seng, Nikkei, and Kospi all advanced 0.14% to 0.29%.

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