On Tuesday, the US stock market continued to correct
Dow Jones showed the highest 2-day decline since September 2016 before the next Fed meeting, which will take place today.
No rate changes are expected, but the Fed representatives may reveal their monetary policy plans for the current year. 10-year Treasury yields updated the 4-year high of 2.7% in annual terms. Yesterday Trump delivered his first address to the Congress. He stressed the obvious success of the US economy – the lowest unemployment in 17 years (4.1%) and the GDP growth by more than 3% in the Q3 and Q4 of 2017. Nevertheless, his speech had almost no effect on the market dynamics, as he spoke little about the possible changes in the economic policy. Investors focused on negative corporate news. The S&P 500 Healthcare index fell by 2.1% on the background of the creation of a new insurance company for the employees of Amazon.com, Berkshire Hathaway and JPMorgan Chase. MetLife stocks fell by nearly 9% after the report that the U.S. Securities and Exchange Commission is going to investigate its activities on pension payments. The stocks of Harley-Davidson fell by 8% due to the news about the Kansas factory closing. Apple stocks fell by 0.6%. The U.S. Department of Justice and the Securities and Exchange Commission are going to investigate the legitimacy of slowing some iPhone models to protect aging batteries. Today at 14-15 CET, the ADP data on the labor market for January and at 16-00 CET, existing home sales will be released in the US. At 20-00 CET, the Fed meeting minutes will be published. No rate changes are expected. The next Fed meeting will take place only on March 21, 2018, and no meetings are expected in February. Currently, the futures on the US stock indices are rising slightly. The US dollar index has been declining for the second consecutive day, but it has not yet updated its recent 3-year low. In January of this year, the dollar index has fallen by 3.5%, which may be the highest monthly decline since March 2016.
On Tuesday, the quotes of the European stocks fell alongside with the US
The stocks of the mining and banking sectors had the biggest slump. The main reason was the decline in world raw material prices and the weak earnings reports by European banks.
An additional negative for the market was the weak earnings reports by the Italian Defense company Leonardo (-8%) and the Swedish cash managing company Loomis (-7.6%), as well as the telecommunications giant Ericsson (-8.5%). Today, the drop in the European stock indices was halted thanks to positive earnings reports by Electrolux (+ 7.2%), Volvo (+ 4%) and Elisa (+ 5.9%). Investors expect the publication of the eurozone data on unemployment and inflation for January at 11-00 CET. Preliminary forecasts are neutral. The euro has been growing for the second day in a row, but it has not updated its recent high. USDX did not update its recent low.
Today Nikkei has dropped for the 6th day in a row.
Thus, it is correcting from its 26-year high. Today, the stocks of steelmaking and mining companies showed the greatest slump amid the decrease in raw material prices. Inpex Corp quotes fell by 2.4%, Nippon Steel &Sumitomo Metal quotes– by 2.1%. In contrast to the market, only the stocks of Advantest Corp. rose by 5.7%. This was due to an increase in its net profit forecast. This morning positive economic data on industrial production for December and negative construction data were released in Japan. The yen settled below the level of 109 yen per dollar in anticipation of the Fed meeting minutes. It updated its low. Amid the reduction in demand for Apple products, the stocks of the Japanese electronic parts makers Murata Manufacturing and Taiyo Yuden fell by almost 2%. Because of a decrease in oil prices, the stocks of oil companies Japan Petroleum Exploration (-6%) and Inpex Corp (-2.6%) declined. Japanese economic statistics, published this morning, turned out to be neutral. Tomorrow morning, data on industrial production, real estate market and construction, as well as the consumer confidence index will be released in Japan. Today the Hong Kong index Hang Seng rose by 0.9%. In January 2018, it rose by 9.9%, which is the highest monthly increase since April 2015.
Brent has been declining for the third consecutive day.
On Tuesday, the American Petroleum Institute published data on the growth of the US oil reserves by 3.2 mln barrels in a week. Today at 16-30 CET, U.S. Energy Department will release the official data on the US reserves. Market participants expect them to increase, for the first time in 11 weeks. The growth of reserves may indicate a reduction in demand for oil in the US and adversely affect its quotes. However, the official decrease in reserves is predicted to be small – only 100 thousand barrels per week.
Currently, wheat and corn quotes are slightly correcting down after a noticeable increase. Earlier, wheat rose by 8.5%, while corn reached the 5-month high. The main reason for this was the worsening of weather conditions in the US and South America.
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