Daily market review

United States

Equities recovered in a volatile risk-on move Tuesday on expectations for US government fiscal stimulus. The Dow industrials and the S&P 500 both rose 4.9 percent, and the NASDAQ gained 5.0 percent.

Markets were bolstered by expectations that President Trump would announce stimulative measures after the US close, and by rebounding oil prices. Earlier, Japan announced a stimulus package, and Australia said it would follow suit. Italy's government suspended mortgage payments after virtually shutting down the country.

Oil prices perked up after reports that Russia may be open to renewing talks with Saudi Arabia and other big oil producers to cut output.

Riskier cyclical stocks led the recovery while defensive plays lagged. Best performers included financials, technology, and consumer discretionary. Energy stocks posted good gains, with exploration and production stocks leading. Even beat-up airlines rebounded. Laggards included health care and consumer staples. Utilities, the defensive stalwart, fared worst.

Among companies in focus, Dick's Sporting Goods rose 4.1 percent after topping earnings and revenues expectations and raising its dividend. Delta Airlines rose 4.5 percent despite saying it would join other airlines in cutting flights because of the virus situation. Stitch Fix, the online clothing service, dropped 25 percent after cutting its 2020 guidance and after a revenues miss.

In economic news, optimism remained strong among small business owners in February, at an index level of 104.5 and just within the high end of Econoday's consensus range. Those who expected the economy to improve rose sharply in the month with plans to increase employment also a positive. February's sample was taken before the recent escalation of the coronavirus.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$3.31 to US$37.81, while gold fell US$25.00 to US$1,650.00. The US dollar rose against most major currencies. The US Treasury 30-year bond yield rose 29 basis points to 1.31 percent while the 10-year note yield rose 23 basis points to 0.80 percent.


Equities gave up early gains to end lower on more bad news about spreading coronavirus cases. The Europe-wide STOXX 600 dropped 1.1 percent, the German DAX fell 1.4 percent, the French CAC lost 1.5 percent, and the UK FTSE-100 was off 0.1 percent.

Rising virus cases and shutdowns across Europe, with Italy locked down, offset early positive sentiment linked to planned US government stimulus efforts. Among sectors, basic resources. oil & gas, and banks, all heavily oversold in Monday's washout, eked out gains to outperform. Laggards included utilities, telecom, real estate, retail, and personal & household goods.

In economic news, French industrial production picked up in January. However, the rebound was just partial as output (ex-construction) followed a 2.5 percent monthly slump in December with a rise of only 1.2 percent. Annual growth edged up from minus 3.0 percent to minus 2.8 percent, its second worse reading since November 2012.

Asia Pacific

Major Asian markets fell sharply again at the start of trading Tuesday, extending the heavy losses recorded on Monday around the globe. These markets, however, rallied to close the session with solid gains as reports of President Trump's proposal to cut payrolls taxes boosted investor hopes that significant fiscal policy stimulus by policy-makers will offset the economic impact of the global coronavirus outbreak. The governments of Japan and Australia are among those expected to announce additional fiscal measures, adding to moves by central banks to support liquidity conditions across financial markets.

Australia's All Ordinaries index was the best performer in the region, recovering from another big drop early in the session to close up 3.0 percent at the end of the day. Shares of energy producers, banks, and tourism-related companies all posted strong gains. Japan's Nikkei and Topix indices closed up 0.9 percent and 1.3 percent respectively, the Shanghai Composite index advanced 1.8 percent, and Hong Kong's Hang Seng index gained 1.4 percent.

Chinese inflation data were the main highlight of the regional data calendar. China's headline consumer price index increased 5.2 percent on the year in February, down from 5.4 percent in January and matching the consensus forecast. The fall in headline inflation was driven by non-food prices, which rose 0.9 percent on the year in February after advancing 1.6 percent in January, with transport and communication prices falling 1.6 percent on the year after increasing 0.9 percent previously. Although this move likely reflects the impact of the timing of lunar new year holidays, travel restrictions imposed to counter the spread of the coronavirus outbreak also will have contributed. Food prices rose 21.9 percent on the year, up from growth of 20.6 percent previously, with ongoing disruptions in pork supply again a major factor.

China's headline producer price index fell 0.4 percent on the year in February after advancing 0.1 percent in January, close to the consensus forecast for a decline of 0.3 percent. The fall in headline PPI inflation in February was largely driven by bigger year-on-year declines in energy and production material costs.

Looking ahead*

On Wednesday in Europe, UK monthly GDP, industrial production, and merchandise trade figures are scheduled. In the US, the CPI and Treasury budget reports are on tap.

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