EU Industrial Production, US Baker Hughes Oil Rig Count
Compared to the previous day no clear direction was seen across all markets. While the S&P 500 rallied to a new record high further above the recently reached 3,000-point threshold, the story was quite different for other US indices like the Russell 2000 and even more some non-US indices. Inflation data for the US as reflected in the core CPI was surprisingly higher than expected at annualized 2.1% vs. 2.0% expected. This led some analysts reduce their expectations of a significant upcoming rate cut by the Federal Reserve.
In a recent post on Twitter the US President Trump complained that China was letting the US down as they have not been buying agricultural products from the US as Trump alleges was agreed, bringing doubt on the state of the trade talks, while appeared to restart around the G20 summit as Trump agreed to stop imposing new tariffs for the time begin.
Cryptocurrencies faced another volatile trading day while Bitcoin’s fall was stopped above the $11,000 mark. Bitcoin prices are almost unchanged on a weekly basis (compared to the previous Friday) but altcoins like Ripple or EOS lost more than 15 percent of value over the same time-frame.
Relatively few data releases are scheduled for Friday. From the EU side Spain will follow up with its consumer price index (CPI) data and the EU publishes its industrial production statistics for May. Later the US Baker Hughes Oil Rig Count will be released. Over the past weeks the number of operating oil rigs remained almost unchanged below 800.
The dollar briefly recovered before further declining on Friday night, giving the EUR/USD pair space to move closer towards the 1.13 threshold.
On Friday the EU will publish industrial production data for May with annualized growth expected to be in the negative territory. Especially weak data from Germany earlier this week gives where the industrial production was reported down by 3.7% compared to the previous year is something markets could be concerned about.
The International Monetary Fund (IMF) which is still led by the likely future President of the ECB Christine Lagarde, warned that the economy in the euro-zone faces a multitude of risks including the situation in Italy and international trade. The IMF cautioned in their report that maintaining an accommodative monetary policy was a vital solution given “a prolonged period of anaemic growth and inflation.”
Gold prices came down on Thursday as higher inflation and strong labour market data reduces expectations of a rate cut by the Federal Reserve later this month.
Palladium climbed again higher above the recent high from March, before retracing after facing resistance around the $1,600 (per troy ounce) level. Palladium demand is driven by demand in the car industry facing ever stricter emission standards. While palladium and platinum are oftentimes mined together, as palladium is a by-product of platinum mining activities, platinum prices remained in a relatively restricted range around $800 over the past months.
On Friday the CFTC publishes data on speculative futures positions with its Commitment of Traders (COT) report. Most recent data indicated the highest number of net long positions on gold futures since 2016.
While the rally in US indices like the S&P 500 continued, the picture looked quite different in Europe where some stock markets like German and France closed lower. Investors are especially concerned about the state of the German economy seeing a recession as inevitable. One of the worst performers among key German stocks was the car industry supplier Continental (-2.60%) with the stock price trading at the lowest levels since 2013. Meanwhile Airbus (+0.15%) closed a new record levels as the company is seen to become the largest manufacturer of commercial aircraft given Boeing’s issues with the grounded 737 Max.
The high dependence on export could make the biggest economy in the EU also susceptible to the Donald Trump’s campaign to impose tariffs on countries with significant trade balance surplus with the US. The move by the French lawmakers to impose a digital tax, which would especially target US companies like Alphabet (Google) and Facebook could also put the country and the EU in the crosshairs of the United States as the White House opened an investigation into this new French tax.
US stock indices had mixed results in the trading session on Thursday. While the S&P 500 and Dow Jones indices pushed higher to new record highs, the small-cap index Russell 2000 and the tech index NASDAQ closed lower. Especially biotech (US Biotech ETF -1.44%) and real estate (US Real Estate ETF -1.19%) stocks closed lower, while bank stocks (US Banks ETF +0.90%) were able to recover from recent losses when rate cuts by the Fed became a more likely scenario. 10 year US Treasury Note yields moved to a new one month high. While higher than expected inflation could have been one factor, the lack of demand in the 30-year Treasury bond auction on Thursday could have also been a factor.
Delta Air Lines (+1.09%) released earnings showing a record revenue at $12.5 billion and better than expected profitability with earnings-per-share at $2.35. These positive results were driven by strong demand and also not being affected by the issues surrounding the grounded Boeing 737 Max as the airline opted to order models of the Airbus A320neo series, while operating only Boeing 737 models of the “Next Generation” series that were in production since the late 90s.
Next week multiple companies especially in the bank sector will report their quarterly results. Kicking off the earning season will among others be Citigroup on Monday, JP Morgan Chase, Wells Fargo and Johnson & Johnson on Tuesday. Followed by eBay and U.S. Bancorp on Wednesday.
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