A mix across the region but two markets outperformed due to local election news. It was a G’day Down Under as PM Scott Morrison and his Liberal-National coalition retain power. India was the region’s leader as PM Modi and his coalition also fared well and will remain in control of the world’s largest democracy. China lagged with a Politburo member indicating a trade war with the U.S. would pare GDP by 1%. Singapore and Thailand were both closed and will reopen tomorrow.
Most sectors end the day in the red. Telcos and healthcare gave ground more than 0.5% followed by consumer staples and IT. Financials and energy improved by c. 1%. (See energy markets below.)
- Australian banks traded very well thanks to the election news. Westpac +9.2% led the charge with peers: CBA +6.3%, ANZ +7.8% and NAB +7.9%. The Labor Party threatened to end tax breaks for property owners and investors.
- A rating agency cut Nissan Motor’s -1.2% outlook to negative noting more severe downward pressure on earnings vs. peers.
- The Yuan slowed its march toward 7.00 vs the USD with a PBoC Vice Gov. remarking they intend to keep the yuan steady and will adopt necessary counter-cyclical measures, if needed. It then set the reference rate lower again anway.
- Japan’s GDP for the quarter rose 0.5%. which is better than the 0.1% pullback expected. Declines in private consumption and business spending are less than feared.
- After the close, Xiaomi and Tata Motors reported earnings.
- Tomorrow, the RBA will release minutes from its May policy meeting.
Initially, equities were mixed with mostly small moves for the major indices. Italy has underperformed with political worries on the rise again (See next paragraph.). The markets moved firmly into the red upon headlines out of China. Money China issued a tweet saying China will suspend all business with any supplier that has decided to cease supplying Huawei. Google is suspending some business with the company due to the U.S. restrictions. Infineon -4.8% is also said to have suspended some chip shipments to the company. The report went on to say tariffs on Apple products may be hiked. The coup de grace is a statement trade talks have been halted! Adding to negative sentiment, the Bundesbank says Germany’s Q2 GDP will stagnate and notes concerns for the auto industry.
The region also has its fair share of political developments. EU elections will commence Thursday and conclude on Sunday. German CDU head Kramp-Karrenbauer appears to have failed in an attempt to have German Chancellor Merkel step down after the EU elections. Discord within the Italian government emerged over the weekend. DP Dalvini’s top aide made critical statements of PM Conte. A scandal forcing Austrian Vice Chancellor Strache to resign is prompting Chancellor Kurz to call for snap elections. They may be held in September. Lastly, new Ukrainian Pres. Zelenskiy disbanded parliament after being sworn into his post. This was one of his election pledges.
All the major sectors are trading to the downside. Technology and chemicals are off c. 2.0%. Most other sectors are off by at least 1%. Off small and underperforming are telcos, utilities and energy.
Snippets from the Region
- Ericsson +0.8% and Nokia +2.0% are seen as beneficiaries of any disruptions to Huawei’s business.
- Ryanair’s -3.7% profits are the lowest in 4 years. The discount airline sees FY earnings flat y/y. While summer ticket sales show strong trends, fares remain at low levels. suppressing margin. Also in the travel sector, a group of investors says Thomas Cook -14.3% would benefit from a debt for equity swap to improve its balance sheet.
- A New York Times report alleges some transactions of entities involving Pres. Trump and Jared Kushner raised anti-money laundering alerts at Deutsche Bk -3.0%. However, executives at the company prevented the information from being sent to the Treasury Department. For its part, the bank says no reports were ever blocked from being submitted to the appropriate authorities.
Crude advances thanks to a variety of factors this morning. S. Arabia and peers indicate OPEC+ intends to keep production cuts in place for the rest of the year. Continued antagonistic actions from Iran also are stoking fears and adding to the bid. Pres. Trump threatened the “end of Iran” in a tweet. The Chinese headlines have caused it to pare the advance.
On Our Side of the Pond
- Reports once again indicate both T-Mobile & Sprint will offer asset sales and other pledges to U.S. authorities to gain approval of their merger. Deutsche Telekom -0.1% holds c. 63.0% of T-Mobile.
- Canada is closed for Victoria Day.
Markets and Macro
|UK||Rightmove House Prices MoM||May||—||0.90%||1.10%||—|
|UK||Rightmove House Prices YoY||May||—||0.10%||-0.10%||—|
|JN||GDP SA QoQ||1Q P||-0.10%||0.50%||0.50%||0.40%|
|JN||GDP Annualized SA QoQ||1Q P||-0.20%||2.10%||1.90%||1.60%|
|JN||GDP Nominal SA QoQ||1Q P||0.10%||0.80%||0.40%||0.50%|
|JN||GDP Deflator YoY||1Q P||0.20%||0.20%||-0.30%||—|
|JN||GDP Private Consumption QoQ||1Q P||-0.20%||-0.10%||0.40%||0.20%|
|JN||GDP Business Spending QoQ||1Q P||-1.90%||-0.30%||2.70%||2.50%|
|JN||Industrial Production MoM||Mar F||—||-0.60%||-0.90%||—|
|JN||Industrial Production YoY||Mar F||—||-4.30%||-4.60%||—|
|JN||Capacity Utilization MoM||Mar||—||-0.40%||1.00%||—|
|JN||Convenience Store Sales YoY||Apr||—||1.30%||0.00%||—|
|EC||ECB Current Account SA||Mar||—||24.7b||26.8b||27.9b|
|IT||Current Account Balance||Mar||—||4040m||3253m||3250m|
|HK||Unemployment Rate SA||Apr||2.80%||2.80%||2.80%||—|
|US||Chicago Fed Nat Activity Index||Apr||-0.2||—||-0.15||—|