U.S. GDP Is Better Than Expected, Earnings Lift Equities, Asia Moves Lower On FOMC OutlookThe U.S. 2nd quarter GDP is better than expected but did little to alter the FOMC rate cut expectations.
The U.S. GDP Is Better Than Expected
The U.S. 2nd quarter GDP figures came in better than expected on Friday morning. The initial estimate is for U.S. GDP to have grown 2.1% in the 2nd quarter. This is down from 3.1% in the 1st quarter but beat expectations by 0.2%. The news is further evidence the U.S./China trade war is having less of an impact on activity than first thought. The Dow Jones Industrial Average and S&P 500 were both up about 0.30% following the news, the tech-heavy NASDAQ Composite about 0.40%.
Earnings results are also helping to lift equities in early Friday trading. Reports from Google, Twitter, McDonald’s and Intel were all better than expected. Google reported better than expected top and bottom-line results and announced a new $25 billion stock buy-back plan. Twitter shares advanced more than 6.0% after it reported a profitable quarter and improvements in average daily user numbers. McDonald’s EPS was in line with consensus but strength in U.S. markets helped send the stock up more than 2.0%. Amazon was among the few companies to disappoint the market. Amazon missed its EPS estimates and sent shares down about -1.5%.
Earnings, ECB Lift Sentiment In Europe
European markets are broadly higher in Friday trading as earnings and ECB outlook lift sentiment. On the ECB front, the central bank did not lower its interest rate targets at Thursday’s meeting but it did pave the way for future stimulus. Mario Draghi says the outlook is getting worse and worse, the ECB is likely to reduce rates and add stimulus later this summer. Despite the worsening outlook Draghi also says a recession is not likely in the EU anytime soon.
Shares of Sopra Steria surged 11% in Friday trading. The infotech company reported better than expected results and raised its full-year guidance. The retail sector was moving lower by -1.25% though after Kering reported a miss with its EPS figures.
On the trade front, the U.S. and Chinese negotiators are expected to hold talks next week in China. Although this is a positive development in the trade war a deal is not expected. In fact, some on Wall Street have begun to think a trade deal is not possible.
Asia Moves Lower On Reduced FOMC Expectation
Asian markets were mostly lower on Friday as market expectation for aggressive FOMC rate cuts next week fade. The FOMC is still expected to make one cut next week but the odds for two have fallen from near 100% to a mere 25%. The reason is due to the data, economic data is stronger than expected and does not support the idea of U.S. economic recession.
The Shanghai Composite was the only index to close with a gain, about 0.25%. The Hong Kong Hang Seng led the decliners with a loss near -0.70% while the Nikkei, ASX, and Kospi all fell about -0.40%.