May 6, 2019
Chinese markets plummet more than 5% as U.S.-China trade tensions increase
Shares in Asia fell on Monday, May 6, while the U.S. president threatened on Sunday to apply more tariffs to Chinese products. China is considering canceling its trade talks with the United States this week after Trump’s latest threats.
Australia’s ASX 200 fell 0.9%, with almost all sectors down. The Japanese and South Korean markets are closed for holidays.
On Friday, U.S. employment data was released indicating an increase in employment in April. The unemployment rate falls to its lowest level since 1969. 263,000 new jobs were added, exceeding expectations of 190,000 jobs. The unemployment rate fell to 3.6% from a projected 3.8%.
On Friday, the dollar fell against most of its major currency pairs as investors focused on the release of April’s Non-Farm Payrolls. Despite the gains, the modest monthly wage growth rate of 0.2% and the drop in the labour force participation rate led to the sale of the U.S. currency.
The euro gained 0.21% against the dollar, after hitting a week-long low, while the dollar fell 0.38% against the yen.
Oil prices rose on Friday as strong U.S. economic data drives demand. Production losses from sanctions on Iran and Venezuela also affect oil prices. The rise is limited by a rebound in U.S. oil inventories, which were released earlier this week. Saudi Arabia’s production could increase in June to meet domestic demand for power generation.
Gold rose on Friday from a 4-month low in the previous session. The drop in the dollar is benefiting gold, despite data from the U.S. employment sector showing an improvement last month. The rebound comes after an oversold level that is causing technical purchases at the moment.
European markets are expected to open lower on Monday.
U.S. unemployment falls
Dow rises 190 points after U.S. unemployment falls to its lowest level in half a century and Amazon stocks rise.
U.S. indices rose on Friday, May 3, recovering from their previous losses. Data showed that job creation in the U.S. was stronger than expected in April.
It created 263,000 new jobs, while the unemployment rate fell to 3.6%. It is the lowest since December 1969. Non-agricultural payroll growth far exceeded Wall Street expectations. The average for the last three months has only been 164,000 new jobs, so it is well above previous data.
The market was also driven by Federal Reserve Chairman Jerome Powell’s comments that low inflationary pressures are temporary. These comments reduced the likelihood of an interest rate cut, which disappointed investors.
Friday’s rise was led by Amazon whose shares rose, for the first time in five days, after Buffett said he had been buying Amazon shares. The e-commerce giant’s shares rose 3.2% on Friday.
The strong earnings from the earnings season have been supporting the markets. More than half of the S&P 500 companies reported earnings in the first quarter and the results far exceeded expectations.
Stocks in Europe weaken
The BoE kept its interest rates unchanged and factory activity rose by 4%.
The EUR rose by 0.21% against the Dollar after hitting a week-long low. The Dollar was down 0.38% against the Yen.
Traders are reacting to the Fed Chairman’s comments, business results and disappointing euro zone data.
The Federal Reserve is looking for a new program that could be another version of quantitative easing
Federal Reserve economists have come up with the idea of a ‘permanent repo facility’ that would allow banks to exchange bonds for reserves.
The idea would be to get banks to hold fewer reserves and thus help the Fed in its attempt to reduce its balance sheet.
The measure would be aimed at ensuring liquidity in difficult times and would help the Federal Reserve reduce the size of its balance sheet, which reaches almost $4 trillion.
The plan has considerable support, but critics say it could represent dangerous manipulation of financial markets.
Data points to Federal Reserve being on the lookout for inflation
The Federal Reserve’s preferred inflation indicator showed no change in March and remained well below the central bank’s target.
At the same time, consumer spending increased thanks mainly to spending on motor vehicles and health care.
The personal consumption expenditure index, which excludes food and energy prices, remained stable on a monthly basis and increased by 1.6% year-on-year.
The PCE deflator is the Federal Reserve’s main measure of inflation. The central bank considers 2% to be a healthy level, but one that has not been reached for most of the last decade.
Federal Reserve officials have said they expect interest rates to remain stable for the rest of the year, due in part to a low inflation rate.
U.S. Crude Oil price drops to its lowest monthly level
West Texas stands at $61.81, as supply concerns ease.
On Thursday, May 2, oil prices fell by up to 4%, breaking a key support level. The increase in U.S. reserves helped counter concerns about a supply contraction.
Oil futures fell despite a wave of geopolitical concerns, including political turmoil in Venezuela and the launch of new measures aimed at bringing Iran’s oil exports to zero.
U.S. crude oil reserves have increased in five of the last six weeks, helping to alleviate market concerns about global oil supply.
Reports that Asian refineries are asking Saudi Arabia for more crude also weigh on prices and any sign that the Saudis can respond to that call will push prices down.
Apple shares should increase more than 70% in the next 24 months
Apple is one of the most bullish companies on Wall Street.
It has outperformed the S&P 500 by 14% since the December low. The share price has risen 39% since then and 24% in the last 12 months.
But the race has not come without challenges. Apple warned in January that quarterly iPhone sales would probably be below expectations. In addition, Microsoft has overtaken Apple as the world’s most valuable company.
In the long term, there are great business opportunities for Apple’s new arcade and streaming services.
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