Daily market review

United States

US equities extended their recent gains Wednesday as signs of slowing infection rates for the coronavirus helped sustain the underlying bullish narrative: low interest rates, steady growth, diminished trade tensions. The Dow industrials rose 0.9 percent, the S&P 500 gained 0.6 percent, and the NASDAQ was up 0.9 percent.

A second day of congressional testimony from Fed Chair Jay Powell left unaltered the market's expectation that rates remain on hold, with an accommodative stance and expanding balance sheet.

Outperforming sectors included consumer discretionary, energy – led by rising oil prices in the risk-on trade – and communications services. Consumer staples, health care, and financials lagged.

On a busy earnings day, Shopify, the e-commerce company, jumped by 7.7 percent on a revenue beat and widening merchant use of its online platform. Teva, the generic pharmaceutical company, rose 9 percent after an earnings beat and decent guidance. Akamai Technologies rose 1 percent as results topped estimates due to strength in its cloud business and rising traffic on its network.

On the downside, Global Payments, a financial technology company, eased 0.8 percent on disappointing guidance. Lyft, the ridesharing company, dropped 10 percent after disappointing the market on its projected timing for reaching profitability. Bed Bath & Beyond plunged 21 percent on disappointing same-store sales for December and January. Molson Coors slipped 4.4 percent on an earnings miss, with sales off in the US and Canada. CVS, the big pharmacy, eased 0.2 percent after beating on earnings but issuing weak guidance.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.86 to US$56.11, while gold fell US$2.00 to US$1,569.80. The US dollar was mixed against most currencies. The US Treasury 30-year bond yield rose 2 basis points to 2.08 percent while the 10-year note yield rose 2 basis points to 1.62 percent.


Risk-on sentiment lifted European equities Wednesday on an active earnings day and on reports of slowing in new infections of the coronavirus in China. The Europe-wide STOXX 600 rose 0.6 percent, the German DAX gained 0.9 percent, the French CAC rose 0.8 percent, and the UK FTSE-100 was up 0.5 percent.

Cyclicals and sectors exposed to China outperformed, including autos & parts, basic resources, banks, telecom, oil & gas, chemicals, and travel & leisure, while defensives lagged, with utilities, real estate, and health care off. Markets appear to be anticipating a quick end to the epidemic and bounce-back in Chinese economic activity. The market also chose not to focus on another surprisingly weak economic report, this time a big drop in Eurozone industrial production.

Among companies in focus, Dutch brewer Heineken rose 5.2 percent on upbeat earnings and news its longtime CEO would step down. Dutch grocer Ahold Dalhaize rose 1.1 percent after reporting strong US sales. On the downside, Dutch bank ABN Amro dropped 5.8 percent after an earnings miss.

In economic news, December was one of the worst months on record for Eurozone goods production. Excluding construction, output slumped 2.1 percent on the month, its steepest fall since February 2009. With November's advance also revised away, annual growth nosedived from minus 1.7 percent to minus 4.1 percent, its weakest since the global financial crisis.

Asia Pacific

Most major Asian markets closed higher Wednesday, with a light regional data calendar again keeping the focus on news about the coronavirus outbreak. Investors appeared to take some reassurance from comments made Tuesday by Fed Chairman Powell indicating that he is monitoring the outbreak but is not at present alarmed by its potential impact on the global economy.

The Shanghai Composite index and Hong Kong's Hang Seng index both advanced 0.9 percent on the day. Australia's All Ordinaries index closed up 0.5 percent, boosted by strong gains for the Commonwealth Bank of Australia after it posted positive half-year results. Japanese shares were mixed as trading resumed after Tuesday's holiday, with the Nikkei index closing up 0.7 percent but the Topix index flat on the day. Japanese conglomerate Softbank surged in response to Tuesday's news that a US judge had approved a merger between Sprint, in which it holds a major stake, and T-Mobile.

The Reserve Bank of New Zealand left its policy rate unchanged at a record low of 1.00 percent at its meeting Wednesday, in line with the consensus forecast. Although officials acknowledged the potential impact of the coronavirus outbreak on the New Zealand economy, they expressed confidence about the near-term growth and inflation outlook. In particular, officials noted that recent fiscal stimulus by the New Zealand government, in the wake of policy rate cuts earlier in 2019, had created a "better mix" and reduced the need for further rate cuts. Although officials consider there is scope to adjust policy further if required, Wednesday's statement suggests that their preference for now is to maintain the recent stability in rates.

Looking ahead*

On Thursday in Europe, French ILO unemployment and German CPI figures are due. In North America, US CPI and jobless claims reports are scheduled.

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