Daily market review

United States

US stocks recovered from early losses to end higher Thursday as worries about the coronavirus appeared to ease after an afternoon World Health Organization statement ruling out travel restrictions. Upbeat earnings gave the market a lift, in particular from some Dow heavy hitters. The Dow industrials rose 0.4 percent, while the S&P 500 and NASDAQ both gained 0.3 percent.

The WHO declared the novel coronavirus a global health emergency and called for coordination to contain the disease, but it also rejected travel and trade restrictions, and congratulated the Chinese government for keeping the virus largely contained within China. Markets have focused on the impact of business and trade disruptions resulting from the pandemic, including measures governments might take to limit international travel and trade.

Among sectors, communications services suffered the most, with Facebook (down 6.1 percent) hit after disappointing earnings. Materials were depressed by weakness in chemicals and paper/packaging stocks, with DuPont off 8.6 percent after downgrading its 2020 guidance, and International Paper down 2.7 percent on a revenues miss. Delivery company UPS, down 6.8 percent, depressed industrials. On the positive side, financials outperformed, led by insurers and online brokers. Techs gained on strong results from Dow member Microsoft, which rose 2.8 percent. The biggest winner was consumer staples, with Mondelez International, the food conglomerate, up 7.8 percent, and Hershey, the chocolate king, up 4.7 percent on upbeat quarterly earnings. Coca-Cola, another Dow component, rose 3.3 percent on positive earnings and revenues surprises, and improved 2020 guidance.

In US economic data, GDP grew at a moderate 2.1 percent annual rate in the fourth quarter, which hit Econoday's consensus. Real consumer spending rose at a 1.8 percent rate, which was only 1 tenth short of the consensus. And residential investment, a related consumer component, rose at a strong 5.8 percent rate. Separately, initial jobless claims fell 7,000 in the January 25 week to 216,000 though the prior week was revised sharply higher, up 18,000 to 223,000. Yet the trend remains favorable as the 4-week average continued to move lower, to 214,500 in the latest week.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 80 cents to US$58.86, while gold rose US$1.10 to US$1,582.70. The US dollar weakened against most major currencies. The US Treasury 30-year bond yield rose 1 basis point to 2.05 percent while the 10-year note yield fell 1 basis point to 1.58 percent.


European equities fell Thursday on weak earnings, coronavirus worries, and disappointment the Bank of England did not cut interest rates. The Europe-wide STOXX 600 fell 1.0 percent; the German DAX, the French CAC, and the UK FTSE-100 all fell 1.4 percent.

Energy stocks were the biggest losers after a disappointing earnings report from Royal Dutch Shell, off 3.7 percent, and more declines for oil prices. Telecoms lagged as well, with BT Group down 7.4 percent after reporting an earnings miss. Other decliners included miners, luxury goods makers, and airlines, on concern about fallout from Chinese weakness. On the positive side, Volvo rose 6.1 percent, and consumer goods conglomerate Unilever gained 2.0 percent on upbeat quarterly results.

In economic news, the BoE kicked off 2020 by announcing no change to policy. Bank Rate stayed at 0.75 percent and QE remained capped at £445 billion, within which gilts are £435 billion. Having voted 7:2 to maintain the status quo in December, the January decision was passed by the same majority, a clearer cut outcome than expected by most. Separately, Eurozone economic sentiment improved again in January. At 102.8, the EU Commission's gauge was up 1.5 points to record its highest reading since August.

Asia Pacific

Markets remained closed in China Thursday for lunar new year holidays, but concerns about the ongoing coronavirus outbreak weighed heavily on investor sentiment elsewhere in the region, outweighing the impact of the Federal Reserve decision Wednesday and regional data. Hong Kong's Hang Seng index was hardest hit, down 2.6 percent on the day, while Japan's Nikkei and Topix indices fell 1.7 percent and 1.5 percent respectively. Australia's All Ordinaries index closed down 0.4 percent. Travel-related shares were again among the weaker performers in most markets.

Hong Kong's merchandise trade deficit widened from HK$26.2 billion in November to HK$32.5 billion in December. Exports rose 3.3 percent on the year after dropping 1.4 percent previously, but this improvement largely reflected the base effect of weak exports to China twelve months earlier. Exports to other major markets, including Japan and the United States, were again weak in December, and officials expressed concern about the potential impact of the coronavirus outbreak on external demand in coming months. Imports fell 1.9 percent after a decrease of 5.8 percent previously.

New Zealand's merchandise trade balance swung from a deficit of NZ$791 million in November to a surplus of NZ$547 million in December. This shift from a deficit to a surplus is broadly in line with the typical seasonal pattern, though the surplus this year is significantly bigger than that seen in the December of the two previous years. Exports of goods increased 4.8 percent on the year in December, slowing from a revised increase of 7.3 percent in November, while imports of goods fell 5.4 percent on the year in December, down from a revised increase of 2.4 percent in November.

Looking ahead*

On Friday in Asia/Pacific, the following are scheduled: Japanese unemployment rate, Japanese industrial production, Japanese retail sales, Australian PPI, and Chinese CFLP manufacturing PMI. In Europe, the following are scheduled: French GDP flash, German retail sales, Swiss retail sales, French consumer manufactured goods consumption, French CPI, French PPI, Italian GDP, Eurozone GDP flash and Eurozone HICP flash. In North America, Canadian monthly GDP, US personal income and outlays, US employment cost index, US Chicago PMI, and US consumer sentiment figures will be released.

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