Daily market review

United States

Equities rebounded Monday from oversold positions on rising expectations for a near-term Federal Reserve rate cut and coordinated action by other G-7 partners to boost the global economy in the face of the virus shock. The Dow industrials rose 5.1 percent, the S&P 500 jumped 4.6 percent, and the NASDAQ gained 4.5 percent.

Markets are now pricing in a 50 basis point Fed rate cut by the March Fed policy meeting. Bank of Japan Governor Haruhiko Kuroda said on Monday that Japan's central bank would take necessary steps, echoing similar comments last week from Fed Chair Jay Powell.

All sectors rose, with defensives and tech in the lead. Consumer discretionary, industrials, and energy lagged. Oil prices rebounded after six consecutive days of declines.

Among companies in the news, Gilead Sciences, the pharma, rose 9 percent after announcing it would acquire Forty Seven, a cancer drug company which rocketed by 62 percent. Apple was among the day's big winners as it bounced back from a two-year low to gain 9 percent. Walmart was another big gainer, up 7.6 percent.

In US economic news, a spike in delivery times skewed ISM manufacturing higher and kept the headline composite in the 50-zone for February, at a largely as-expected 50.1 for an 8-tenth decline from January. Delivery times shot 4.4 points higher to 57.3 which reflects supply disruptions tied to the coronavirus impact in China. Separately, led by residential construction but including a strong gain for nonresidential construction as well, total construction spending jumped a much higher-than-expected 1.8 percent in January.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.91 to US$52.43, while gold rose US$17.40 to US$1,592.00. The US dollar was mostly weaker against major currencies. The US Treasury 30-year bond yield rose 3 basis points to 1.71 percent while the 10-year note yield rose 1 basis point to 1.16 percent.


Hopes for concerted G-7 action -- including rate cuts -- helped equities end mixed to slightly better Monday. The Europe-wide STOXX rose 0.1 percent, the German DAX eased 0.3 percent, the French CAC rose 0.4 percent, and the UK FTSE-100 gained 1.1 percent.

The market took note of statements from Bank of Japan, the European Central Bank, Bank of England, and the French finance minister pointing to likely coordinated rate cuts and other steps to bolster confidence in the face of the economic hit already beginning to be evident from the spreading virus. Markets appear to be anticipating a near-term rate cut from the Fed, and a cut from the ECB at its March or April meetings.

Among sectors, utilities led the session's gainers followed by oil & gas, health care, construction & materials, and food & beverages. Laggards included travel & leisure, banks, media, autos, and industrials. Ryanair, the Irish budget carrier, was a leader to the downside, off 6 percent, on plunging bookings.

In economic data, moderation in the rate of deterioration in German manufacturing was confirmed in the final PMI for February. The updated results showed the 47.8 flash reading revised up to 48.0, well above January's 45.3 final mark but also still well below the 50-expansion threshold. Separately, a decent month for UK manufacturing was confirmed in the final PMI for February. The 51.9 flash estimate was trimmed a couple of ticks to 51.7 but this still left a tidy 1.7 point gain versus both its final January print and the expansion threshold.

Asia Pacific

Major Asian markets generally opened lower again at the start of Monday's trading session but rebounded after the Bank of Japan issued a statement aiming to reassure investors and the general public about the market turmoil created by the coronavirus outbreak. Governor Haruhiko promised that officials will strive to provide ample liquidity and ensure stability in financial markets, broadly in line with similar reassurances provided Friday by Fed Reserve Chair Jerome Powell. This statement was followed by an announcement that the Bank of Japan would buy Y500 million in government bonds in order to provide an immediate boost to market liquidity.

Japan's Nikkei and Topix indices both closed up 1.0 percent at the end of trading Monday, with markets elsewhere in the region also recovering partly or in full from losses earlier in the session. Hong Kong's Hang Seng index closed up 0.8 percent while Australia's All Ordinaries index closed down 0.8 percent but recovered some of its earlier losses.

The Shanghai Composite index outperformed, closing up 3.2 percent despite very weak PMI survey data published over the weekend and on Monday. This rebound suggests that there is some confidence among investors that the collapse in economic activity indicated by the data in February will not persist as officials implement measures aimed at boosting business and consumer sentiment and supporting a resumption of activity as quickly as possible.

Nevertheless, the PMI survey data for China shows that the domestic economy virtually ground to a halt in February as widespread business closures, factory shutdowns, travel restrictions, quarantine arrangements, and other measures were introduced to combat the outbreak. China's CFLP Manufacturing PMI index, published over the weekend, fell from 50.0 in January to a record low of 35.7 in February, while the fall in the CFLP Non-Manufacturing PMI index was even more precipitous, dropping from 54.1 in January to a record low of 29.6 in February. The Markit Manufacturing PMI headline index for China, published Monday, fell from 51.1 in January to 40.3 in February. The Markit Services PMI for February is scheduled for release in coming days, while official Chinese activity data for January and February combined are scheduled for release mid-month.

Other PMI data published Monday also showed weaker manufacturing conditions but suggest that the maximum impact of the economic disruption caused by the outbreak has yet to take place in other parts of the region. The Markit Manufacturing PMI headline index for Japan fell to 47.8 in February from 48.8 in January, while the equivalent indices fell from 49.8 to 48.7 for Korea, from 51.8 to 49.9 for Taiwan, and from 48.8 to 48.5 for Malaysia. The Markit India Manufacturing PMI's headline index also fell from 55.3 in January to 54.5 in February but still remains relatively strong for now, likely reflecting India's smaller exposure to shifts in global trade flows compared with many other countries in the region.

Looking ahead*

On Tuesday in Asia/Pacific, the Australian RBA policy announcement is due. In Europe, Swiss GDP, UK PMI construction, Eurozone HICP flash, Eurozone PPI, and Eurozone unemployment reports are scheduled.

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