Daily market review

United States

Worries about fallout from the coronavirus depressed stocks Wednesday, after President Trump conceded that the US death toll would be high, even with prolonged, stringent mitigation measures. The Dow industrials, the S&P 500, and the NASDAQ all fell 4.4 percent.

Markets reflected concerns that federal coordination has been lacking, testing remains inadequate, medical equipment remains scarce, and many states have not implemented shutdowns. Discussion focused on worries that government stimulus may be too late to prevent huge, lasting economic damage.

All sectors fell, with real estate and utilities the biggest losers, along with financials and industrials. Consumer staples held up best, along with materials and consumer discretionary sectors.

In economic news, the ISM manufacturing report showed underlying weakness. The headline 49.1 suggests only slight contraction in composite activity but reflects a giant 7.7 point surge in delivery times to 65.0, due to virus-induced supply shortages. The clearest reading of conditions comes from new orders, which fell into deep contraction at 42.2, and a 7.6 point fall from February. Backlog orders, at 45.9, fell 4.4 points and are also in sub-50 contraction. Employment was down more than 6 points to 43.8.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$2.15 to US$24.89, while gold rose US$11.84 to US$1,589.61. The US dollar rose against most major currencies. The US Treasury 30-year bond yield fell 5 basis points to 1.28 percent while the 10-year note yield was down 5 basis points to 0.63 percent.


Equities dropped again Wednesday as markets reckoned with the scale of damage due to the pandemic. Many forecasters are concerned that the downturn may be just getting underway, as markets focused on gloomy comments from President Trump and others about the magnitude of the pandemic. The Europe-wide STOXX 600 fell 2.9 percent, the German DAX was off 3.9 percent, the French CAC fell 4.3 percent, and the UK FTSE-100 lost 3.8 percent.

In economic data, German manufacturing activity contracted more than originally thought in March. At 45.4, the final sector PMI was 0.3 points below its flash mark and now 2.6 points short of its February outturn. Meanwhile, the Eurozone manufacturing PMI was revised softer in the updated report for March. At 44.5, the final sector PMI was 0.3 points short of its flash estimate and 4.7 points down on February's final mark. It was also a 92-month low.

Bank stocks were among the day's worst performers as several suspended dividend payments. Lloyds fell 12 percent, Santander was off 3.3 percent, HSBC dropped 7.5 percent, and Standard Chartered fell 8 percent. Other laggards included travel & leisure, autos, industrials, construction, materials, basic resources, and technology, while health care, oil & gas, food & beverage, telecom, retail, and personal & household goods held up better.

Asia Pacific

Most major Asian markets closed lower Wednesday, sharply in some cases with regional data helping to drive some of the variation in performance. Japan's Nikkei and Topix indexes were among the worst performers, dropping 4.5 percent and 3.7 percent respectively after the publication of data showing clear evidence of the negative impact that the global coronavirus pandemic has already had on the Japanese economy.

Hong Kong's Hang Seng index also dropped 2.2 percent on the day, but the Shanghai Composite index fell less sharply, down 0.6 percent after PMI survey data showed stabilization in Chinese manufacturing activity in March. Australia's All Ordinaries index was again an exception to the regional trend, closing up 3.5 percent on the day, with local banks and energy producers posting large gains.

The Markit Manufacturing PMI headline index for China rebounded from a record low of 40.3 in February to 50.1 in March (50 equals no month-to-month change in composite activity), recovering more strongly than the consensus forecast for an increase to 45.8. This is broadly in line with the results of the official CFLP manufacturing PMI survey, published earlier in the week, which showed an increase in its headline index from a record low of 35.7 in February to 52.0 in March. Both surveys indicate that activity in China's manufacturing sector remains subdued but has steadied after the shutdown that took place in February as authorities took steps to curb the coronavirus outbreak. Official Chinese data for GDP, trade, industrial production, retail sales and other activity indicators are scheduled for publication mid-April.

The equivalent survey for Japan's manufacturing sector showed a fall in its headline index to 44.8 in March, in line with the flash estimate and confirming a decline from 47.8 in February. Although the Japanese manufacturing sector was already experiencing an extended period of weakness heading into 2020, it is clear that the economic impact of the global coronavirus pandemic has exacerbated and will likely prolong the downturn. Also published Wednesday, the Tankan survey for the three months to March showed declines in business sentiment in both the manufacturing and non-manufacturing sectors. Firms across both sectors also revised down their estimates for capital expenditure in the fiscal year just ended and their forecasts for the fiscal year just started.

The Reserve Bank of Australia published the minutes of its unscheduled policy meeting held on March 18. At that meeting, officials lowered the main policy rate by 25 basis points to a new record low of 0.25 percent, the first unscheduled change in policy rates since 1997, and also announced additional policy measures aimed at supporting the domestic economy in response to the pandemic. The minutes show that officials consider it very likely that Australia will experience a "very material" contraction in the first two quarters of 2020 and that the timing of any recovery is uncertain.

Looking ahead*

On Thursday in Asia/Pacific the India PMI manufacturing report is due. In Europe: Nationwide HPI, Swiss CPI, and Eurozone PPI figures are scheduled. In North America: US jobless claims, international trade, and factory orders reports are on tap, plus Canadian merchandise trade figures.

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