US, Europe, Asia off after Apple warns on virus impact

United States

Markets turned risk-averse again Tuesday after Apple warned it would not reach its targeted revenue in the current quarter because of weak Chinese production and a hit to demand due to the novel coronavirus. Nevertheless, shares, including Apple and other techs, recovered from early lows with the NASDAQ managing to post a fractional gain. The Dow industrials and the S&P 500, however, posted losses, down 0.6 percent and 0.3 percent respectively.

This is the second time in the last 13 months that Apple has cut its guidance due to China worries, the prior time the result of disappointing Chinese iPhone sales. This time, Apple (which fell 1.8 percent) said it might miss its revenue guidance for the March quarter due to the impact of the coronavirus outbreak which is limiting iPhone supply and Chinese demand for its products. Outside China, Apple said customer demand has been strong and in line with its expectations.

Among sectors in the S&P 500, worst-hit were energy and financials, along with technology, especially Apple suppliers. Health care, consumer discretionary outperformed, along with utilities. Among companies in the news, Walmart rose 1.5 percent as it raised its dividend despite reporting weak holiday results. Conagra, the big food company, fell 6.2 percent after cutting its 2020 guidance.

In US economic data, the Empire State index jumped to a much stronger-than-expected 12.9 in February to far exceed Econoday's consensus range. Shipments accelerated sharply by more than 10 points to 18.9. And inventories, which like shipments could also be subject to supply shortages, also rose, up nearly 14 points to 12.9. Separately, the National Association of Home Builders' housing market index edged 1 point lower for a second month in row, but at 74 is only 2 points shy of December's 20-year high.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 35 cents to US$57.70, while gold rose US$19.80 to US$1,605.40. The US dollar was higher against major currencies except the yen. The US Treasury 30-year bond yield fell 3 basis points to 2.01 percent while the 10-year note yield fell 3 basis points to 1.56 percent.

Europe

Apple's revenues warning and gloomy news from banker HSBC hit equities Tuesday. The Europe-wide STOXX 600 eased 0.4 percent, the German DAX fell 0.8 percent, the French CAC slipped 0.5 percent, and the UK FTSE-100 declined 0.7 percent.

Among sectors in the STOXX 600, outperformers included telecom, utilities, and health care. Lagging were basic resources, banks, autos & parts, industrials, technology, and construction & materials. Chinese-exposed sectors including miners were hit hardest, with profits misses from BHP (off 1.4 percent) and Glencore (down 4.5 percent) adding to losses in the sector. UK lender HSBC dropped 6.6 percent after announcing layoffs and other restructuring measures.

Among companies in focus, German chipmaker Infineon fell 2.2 percent on the Apple news. French automaker Renault fell 4.7 percent after an analyst downgrade.

In economic data, analysts were notably more gloomy about the German economy in February, with ZEW finding both the current assessment and outlook marked down from the start of the year. The current conditions gauge declined 6.2 points to minus 15.7, its first fall since last October albeit only a 2-month low. At the same time, expectations were off a steeper 18.0 points at 8.7, similarly their first setback since October and a 3-month trough.

Asia Pacific

Most major Asian markets closed lower Tuesday, with company-specific news the main focus for regional investors. After tech company Apple advised Monday that it does not expect to meet its quarterly revenue forecasts, largely due to the impact of the coronavirus outbreak, shares in many of its major Asian suppliers fell Tuesday, with Japanese and Hong Kong markets among the weaker performers on the day. Japan's Nikkei and Topix indices closed down 1.4 percent and 1.3 percent respectively, while Hong Kong's Hang Seng index fell 1.5 percent. Shares in HSBC Bank, headquartered in London but also listed in Hong Kong, also fell heavily after it reported weaker than expected results and announced a major restructuring that will cut staffing levels significantly. Australia's All Ordinaries index also closed moderately lower, down 0.2 percent while the Shanghai Composite index outperformed with a small 0.1 percent increase.

The Reserve Bank of Australia published the minutes of its February 4 meeting Tuesday. Officials at that meeting left the main policy rate unchanged at a record low of 0.75 percent. The minutes show that officials had pointed to some signs of improvement in the global growth outlook but also acknowledged that the coronavirus outbreak represented an important new source of uncertainty. Officials also noted that recent wildfires in Australia would likely weigh on domestic activity in the near-term but retained their view that economic growth would pick up over the medium-term. They also expect headline and underlying inflation are likely to increase only modestly to around 2.0 percent over the next two years. The minutes show that officials considered the case for a further reduction in policy rates at this meeting, suggesting they remain open to further policy easing later in the year if progress toward their inflation and unemployment objectives remains slow.

Looking ahead*

On Wednesday in Asia/Pacific, Japanese machine orders and merchandise trade reports are scheduled. In Europe, UK CPI and PPI figures are due. In North America, Canadian CPI and US housing starts and US PPI reports are scheduled, plus FOMC minutes will be released.

Global Stock Market Recap

Global Bond Market Recap

Global Currency Recap

Commodities and currencies

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