Daily market review

United States

US stocks retraced some of last week's sharp losses Monday with support from a positive surprise on US manufacturing purchasing managers data, and as markets appeared oversold. The Dow industrials rose 0.5 percent, the S&P 500 gained 0.7 percent, and the NASDAQ rose 1.3 percent.

Among sectors, riskier shares beaten down last week were the best performers Monday, with technology, consumer discretionary, and materials outperforming, while defensive shares lagged. Strong poll results in the Iowa caucuses for Democrat Bernie Sanders limited risk appetite, though markets were bolstered by polls pointing to President Trump's rising approval ratings following the impeachment trial.

Energy shares continued to suffer from an ongoing bear market in crude oil prices on China slowdown fears linked to the coronavirus. Dow component Exxon Mobil was a notable loser, down 2.2 percent after Goldman Sachs cut its rating on the oil supermajor to sell from neutral.

Among companies in the news, Gilead Sciences, the biopharma, rose 5 percent on reports its treatments will be tested on coronavirus patients. Another pharma, Aimmune Therapeutics, rose 6.3 percent after the Food and Drug Administration approved its allergy treatment. Tesla rallied 19.9 percent after two analysts raised their price targets for the electric automaker. On the downside, Check Point Software Technologies eased 0.6 percent after reporting weaker than expected Q1 revenues and guidance.

In US economic data, ISM's manufacturing sample reported a lift in new orders and especially production though not all the components were positive. At a better-than-expected 50.9, January's index posted its first positive score since July and included a 4.4 point jump in new orders which are also back above breakeven 50 at 52.0. A special positive was new export orders, jumping 6.0 points to 53.3.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$3.86 to US$54.30, while gold fell US$9.90 to US$1,581.10. The US dollar rose sharply against major currencies. The US Treasury 30-year bond yield was flat at 2.00 percent while the 10-year note yield rose 1 basis point to 1.52 percent.


European equities rose Monday, with hard-hit sectors like travel recovering some of their recent losses and with support from upbeat US economic data. The Europe-wide STOXX 600 rose 0.3 percent, the German DAX gained 0.5 percent, the French CAC rose 0.5 percent, and the UK FTSE-100 was up 0.6 percent.

Among sectors in the STOXXX 600, technology, financial services, chemicals, food, and travel led the gains, while oil & gas, basic resources, retail, and media lagged.

UK exporters outperformed on sterling's weakness as the UK formally exited the EU amid worries that UK-EU trade talks may falter, and leave the UK without a trade deal next month. Sparring between UK Prime Minister Boris Johnson and his EU counterparts suggests another drawn-out negotiation.

Global drinks exporter Diageo was up 2.9 percent on the weaker pound, while HSBC rose 0.7 percent. Ryanair, the Irish airline, rose 5.8 percent after reporting strong quarterly results. On the downside, energy and miners were hurt by ongoing fallout from the coronavirus epidemic in China, with BP down 0.9 percent and Glencore down 0.4 percent.

In economic news, UK manufacturing offered some much-needed signs of improvement in January. The final sector PMI was 50.0, up from its 49.8 flash print and fully 2.5 points stronger than its final year-end outturn. It equaled the best performance in nine months. Separately, Eurozone manufacturing may be over the worst but as of last month the sector was still struggling to keep its head above water. January's flash 47.8 PMI was revised up just 0.1 point to 47.9 in the final report and, while now 1.6 points above final December, remained some way off the 50-expansion mark.

Asia Pacific

Chinese markets slumped steeply Monday on the resumption of trading after last week's lunar new year holidays, with domestic investors reacting sharply to concerns about the coronavirus outbreak that had weighed on other markets in the region last week. The People's Bank of China announced over the weekend that it would provide a significant boost to liquidity when markets re-opened Monday, but this was not enough to stabilize conditions, with subdued PMI data also contributing to weak investor sentiment. The Shanghai Composite index closed the day down 7.7 percent, outstripping the weekly decline of 5.9 percent recorded by Hong Kong's Hang Seng index last week.

Other markets in the region also closed lower Monday. Japan's Nikkei and Topix indices fell 1.0 percent and 0.7 percent respectively, while Australia's All Ordinaries index dropped 1.4 percent on the day and the Australian dollar continued to sell off aggressively. The Hang Seng index outperformed with a modest 0.2 percent gain.

PMI manufacturing surveys published Monday showed further contraction in the sector in Japan, more subdued growth in China, but a strong improvement in India. The Markit manufacturing PMI index for Japan rose to 48.8 in January, below the flash estimate and consensus estimate of 49.3 but confirming a small increase from 48.4 in December. This index has now indicated contraction in the sector for nine consecutive months and suggests that the weakness seen in manufacturing for most of 2019 has extended into the new year. The equivalent index for China fell from 51.5 in December to 51.1 in January, its lowest level in five months, whereas the equivalent index for India increased sharply from 52.7 in December to 55.3 in January, its highest level in nearly eight years.

Hong Kong's economy contracted for the third consecutive quarter in the three months to December, with GDP dropping by 0.4 percent after a decline of 3.2 percent in the three months to September. Year-on-year growth also remained deep in negative territory, at minus 2.9 percent in the three months to December and the weakest since 2009. Officials cited the impact of serious civil unrest during the quarter and an ongoing "difficult external environment" as the main factors weighing on growth and cautioned that the outlook for the Hong Kong economy in 2020 remains highly uncertain, noting that the recent coronavirus outbreak represents a new risk to sentiment and activity.

Looking ahead*

On Tuesday in Asia/Pacific, the Reserve Bank of Australia policy announcement is due. In Europe, the following are scheduled: UK PMI construction, Eurozone PPI, and Italian CPI reports. In North America, US factory orders figures will be released.

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