By Scotia Wealth Management - The Zukiwsky Group

market watch

Market Watch: July 19, 2019

Jul 19, 2019 | 8:08 PM

Big Picture

Global Markets Slip as Trade War Weighs on Corporate Earnings

Global shares pulled back on Thursday amid growing signs that the trade war between the U.S. and China is negatively impacting corporate earnings–from North America and Europe, all the way to Asia. However, U.S. stocks got a lift late Thursday following comments from a Federal Reserve official urging central banks to lower interest rates swiftly on signs of economic weakening. The U.S. earnings season, which began this week, included a downbeat assessment from rail-based freight giant CSX Corp., which weighed on U.S. indexes Wednesday. In Europe, earnings have also been a focus for investors, as poor results from key tech stocks dragged European markets lower.

In the U.S., investors seem to believe that a rate cut in late July is a foregone conclusion. The only question that remains for them is the size of the cut: 25 or 50 basis points. Still, a number of analysts seem perplexed by the Fed’s dovish stance given the strong economic data that continues to come out of the U.S. Consumer spending grew at a 4.3% annual rate in Q2, manufacturing output increased in June, and the jobs report for June surprised strongly to the upside.

In Canada, the loonie gained ground on the greenback Wednesday as domestic data continues to paint a picture of an economy recovering after a rough start to 2019. The gain for the loonie came despite falling oil prices, which declined for the fourth straight day on Thursday. Meanwhile the U.S. dollar softened against most major currencies as the Fed looks poised to cut rates. Looking to Asia, China’s Q2 annual GDP growth fell to a 27-year low of 6.2%, while Japan’s exports slumped yet again, falling 6.7% in June. Additionally, Japanese manufacturers’ confidence fell to a three-year low as trade tensions and slowing China growth continue to impact the region. While the U.S. and China have agreed to return to the negotiating table, progress toward any deal seems to have stalled.

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eyes up

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Corporate Earnings Weigh on U.S. Markets; TSX Up Slightly

Markets

For the four days covered in this report, the Dow dropped 109 points to close at 27,223, the S&P 500 declined 19 points to settle at 2,995, while the tech-heavy Nasdaq shed 37 points to close at 8,207. In Canada, the TSX inched up 6 points to end at 16,494.

Equities/Strategy

Strategy U.S. Fed officials: “act quickly if economy looks likely to stumble”.

U.S. Vice Chairman of the Federal Reserve Richard Clarida and Federal Reserve Bank of New York President John Williams spoke yesterday, reinforcing market expectations of a rate cut at the end of the month. Financial markets are now pricing roughly equal probabilities of a 25bps or 50bps rate cut on July 31st. In an interview with Fox Business Network, Mr. Clarida offered the following: “You don’t need to wait until things get so bad to have a dramatic series of rate cuts. We need to make a decision based on where we think the economy may be heading and, importantly, where the risks to the economy are lined up.” Mr. Clarida outlined his view that when policy rates are low and limited stimulus options are available, it is best to act quickly – by lowering policy rates – at the first sign of distress. Atlanta Fed President Raphael Bostic rebuffed his colleagues’ dovish comments yesterday, rejecting the notion that current Treasury yields are signalling to the Fed that it should cut rates.

(Bill Curry)

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