Daily market review

United States

China's decision to slash tariffs on many US goods helped lift US equities Thursday, in a busy day of mixed quarterly earnings. The Dow industrials and the S&P 500 both rose 0.3 percent, and the NASDAQ gained 0.7 percent.

Reports said China would cut tariffs on $75 billion in US goods this month to implement phase-one of the US-China trade pact, and the US is also expected to cut tariffs on Chinese goods. Markets saw the Chinese announcement as part of an effort to boost sentiment in the face of the coronavirus epidemic. Reports that the virus infections may be slowing added to better market sentiment.

Among sectors, communications services outperformed, led by Twitter, which jumped 15 percent after a huge beat in its count of new active users, and as strong ad sales propelled revenues. Technology shares outperformed, led by internet stocks. Consumer staples gained on strong earnings from Philip Morris, the cigarette company, which rose 2.7 percent. Consumer discretionary, health care, and financials lagged, with materials and energy the worst off, as oil supermajors gave back some of the recent gains.

Among other companies in the news, Metlife, the insurer, rose 0.7 percent after its quarterly earnings and revenues outperformed. On the downside, memory chipmaker Qualcomm, a Dow component, fell 0.3 percent despite operating earnings and revenues beats, and inline guidance.

In US economic data, initial jobless claims extended their downward trend, falling a sizable 15,000 in the February 1 week to a 202,000 level that was well below Econoday's consensus range. The 4-week average, at 211,750, is at its lowest level since April last year. Separately, nonfarm productivity and unit labor costs each rose 1.4 percent in advance data for the fourth quarter versus expectations for 1.5 percent each. Output rose at a solid 2.5 percent annual rate in the quarter while, in a positive for productivity, hours worked rose at a lower rate of only 1.1 percent.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 37 cents to US$55.09, while gold rose US$8.76 to US$1,569.50. The US dollar rose against most major currencies. The US Treasury 30-year bond yield fell 3 basis points to 2.11 percent while the 10-year note yield fell 1 basis point to 1.64 percent.


China's tariff cuts on US goods boosted European equities Thursday. The Europe-wide STOXX 600 rose 0.4 percent, the German DAX gained 0.7 percent, the French CAC rose 0.9 percent, and the UK FTSE-100 was up 0.3 percent.

Trade-sensitive sectors, including technology and basic resources, led the gains, with financials also outperforming. Energy stocks lagged on a renewed decline in crude oil prices.

Among companies in focus, GlaxoSmithKline, the big pharma, fell 2.5 percent on bearish analyst comments for a second day of sharp losses. On the positive side, UK insurer, Beazley rose 8.3 percent after reporting a big profits beat and raising its dividend. Deutsche Bank surged 14 percent on news that an investor took a 3.1 percent stake in the German lender. Nordea Bank of Finland rose 7 percent on strong quarterly results.

In economic news, German manufacturing received a serious knock from an unexpected decline in orders in December. Following a 0.8 percent monthly drop in November, new business fell a sharp 2.1 percent, its worst performance since last February and making for the first back-to-back decrease since July and August. As a result, annual growth slumped from minus 6.1 percent to minus 8.6 percent.

Asia Pacific

Major Asian markets posted strong gains Thursday after Chinese authorities announced that tariffs on a wide range of US imports will be halved beginning next week. Investor sentiment also appeared to be supported by reports that efforts to contain the coronavirus outbreak may be making good progress. The Shanghai Composite index advanced 1.7 percent, while Hong Kong's Hang Seng index outperformed with an increase of 2.6 percent. Japan's Nikkei and Topix indices closed up 2.4 percent and 2.1 percent respectively, while Australia's All Ordinaries index gained 1.0 percent.

The Reserve Bank of India's Monetary Policy Committee left its benchmark repurchase rate unchanged at a nine-year low of 5.15 percent at its policy review held Thursday, in line with the consensus forecast. Since the RBI's last policy meeting in early December, incoming activity data have shown some improvement in economic conditions, while headline inflation has increased sharply and is now above the RBI's target range of 2.0 percent to 6.0 percent. Officials, however, consider the outlook for both growth and inflation to be highly uncertain at present, judging it appropriate to leave policy settings on hold today. Nevertheless, if food prices were to moderate in coming months, officials may consider that there is scope to ease policy further in order to provide additional support to economic activity.

Australian data published Thursday showed a drop in retail sales and a smaller trade surplus late last year Retail sales fell 0.5 percent on the month in December after increasing 1.0 percent in November, weaker than the consensus forecast for a decline of 0.2 percent. Officials have noted that an increasing tendency by major retailers to offer pre-holiday discounts in late November boosted sales in that month by a greater amount than in previous years. Australia's trade surplus narrowed from a revised A$5.518 billion in November to A$5.223 billion in December, below the consensus forecast for a surplus of A$5.9 billion. Export growth picked up but this was outweighed by a strong rebound in imports.

Looking ahead*

On Friday in Asia/Pacific, the Japanese household spending report is due, along with the Reserve Bank of Australia monetary policy statement. In Europe, German industrial production and merchandise trade, French industrial production and merchandise trade, plus UK Halifax HPI, and Italian retail sales figures are due. In North America, the Canadian labor force survey and Ivey PMI data will be released, and US employment and consumer credit reports are scheduled.

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