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Stock markets worried about US-China trade agreement

December 09, 2019 11:30

US-China Trade agreement

Last week, stock markets started trading with pessimism, with Donald Trump taking a stand against a quick first-stage deal between the US and China. This led to a 2% decline in indices from all-time highs. Nonetheless, in the remaining days, the tone eased and investors were once again keen on buying shares, especially as economic data showed more positive than expected results.

The main US stock indices finished the week mixed. The best performer was S&P500, which appreciated 0.2% to 3,146 points. Other indices failed to recover and recorded slight declines: Nasdaq Composite and Dow 30 lost -0.1% each.

China's leading Shanghai Composite Index appreciated 1.4%. Hong Kong was in the spotlight, since it is recording an increasingly difficult economic situation amid protests and uncertainty in the city. The city's economy has been in recession, retail sales have declined by 24% per year, the manufacturing PMI has fallen to 38.5 points, and tourist flows are falling, which has been a crucial component of the economy so far. Although the city government has provided a 500 million USD stimulus program, many investors doubt that without a political agreement it will be possible to return the economy to a growth trajectory.

In the US bond market, the spread between 2-year and 10-year bonds was fairly stable, rising slightly from 0.17% to 0.20%, while the spread between 3-month and 10-year bonds rose 0.19% to 0.32%, since short-term bond yields fell 1.58% to 1.52 %. The decline in short-term debt instrument yields reflects investors' expectations of further interest rate cuts from the Federal Reserve.

In commodities market, sentiment was positive. WTI oil appreciated 7.2% to 59.1 USD per barrel during the week. OPEC countries have agreed to reduce their production quota by 0.5 million barrels per day, which was one of the main factors behind the rapid rise in prices. The public offering of Saudi Aramco, the state-owned oil company of Saudi Arabia, also ended, selling 25.6 billion worth of stock, and total company value was 1.7 trillion USD. In the metals market, sentiment varied, with copper rising 3.3% and aluminium losing 1.0%. Iron ore was stable and price remained at around 86 USD/T.

Summing up the performance of the sectors, commodities and consumer goods companies posted the strongest growth of 1.1% over the past week. Industry and service companies recorded worse results – the sectors depreciated by 0.4% and 0.6% respectively.

Quarterly financial results of US retailer Kroger were announced last Thursday before the stock exchange opened. The history of the company dates back to 1883 and has since grown to nearly 2,800 market players in 35 US states. The company also has more than 2,000 pharmacies and has 1,500 petrol stations near its retail chains to make it easier for shoppers to buy all the goods they need in one place. The company has about 500 thousand employees.

Kroger generated 28.0 billion USD in revenue for the quarter, which was below expectations of 28.2 billion USD. The annual sales growth after elimination of fuel price reached 2.5%. Adjusted earnings per share were 0.47 USD and market estimates were 0.49 USD.

Kroger stock dropped about 3% after the financial results were announced, but recovered all losses during Friday's trading session. The stock price has fallen about 7% over the last 12 months. The company pays dividends with a yield of 2.3%.

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