Market Update: Thurs, July 25, 2019 | LPL Financial Research


Daily Insights

ECB talks potential cuts as Eurozone slowdown deepens. The European Central Bank (ECB) signaled added monetary policy support is likely on the way following the conclusion of its latest policy meeting this morning. While a new round of bond purchases, known as “quantitative easing,” was expected, new language was also added to the policy statement that rates would be held at “the present level or lower,” signaling an increased likelihood of a rate cut into negative territory in September. Recent data confirmed a deepening slowdown in the Eurozone economy at the same time that risk of a no-deal Brexit increased with the installation of Boris Johnson as the United Kingdom’s new prime minister.

Manufacturing slides again. Markit’s Purchasing Managers’ Index (PMI) fell to 50 this month, the threshold between expansionary and contractionary territory, for the first time since 2009. The data is preliminary, and we typically view the Institute for Supply Management’s PMI gauge as the benchmark for U.S. manufacturing health. Still, global manufacturing has been especially sensitive to trade uncertainty over the past year, and signs of deterioration align with multi-year lows in international PMIs.

Business spending rebounds. New orders for nondefense capital goods (excluding aircraft), a gauge of future business spending, jumped 1.9% month over month, its biggest rebound in 16 months. New orders have been muted for most of this year as companies have shelved expansion plans amid trade uncertainty. Increasing growth in capital expenditures is a key part of our economic outlook, so we are encouraged to see a possible resurgence in investment.

Financials posed for a breakout. After a disappointing start to the year, financials were the top-performing sector in the second quarter. Technical analysis suggests they may have more room to run, as we’ll explain on today’s LPL Research blog.


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