Daily market review

United States

Weak economic data, mixed corporate earnings, and consolidation of recent gains depressed equities Thursday. The Dow industrials declined 1.2 percent, the S&P 500 was off 0.9 percent, and the NASDAQ eased 0.3 percent.

Big tech earnings so far have been well-received, but broader market results have shown the worrisome impact of COVID-19 shutdowns, and Thursday's market had to contend with the latest batch of bleak economic reports. Investors continue to focus on a hopeful narrative that sees big parts of the US and global economies reopening soon. At the same time, worries remain about lack of testing and other measures needed to prevent a resurgence in COVID-19 cases.

Among sectors, airlines, autos, homebuilders, banks, and other financials were hit hardest, while FAANGs, health care, and software outperformed. Among companies reporting, fast food giant McDonalds slipped 0.3 percent as earnings and revenues missed and its outlook remained clouded by the virus effect. Kraft Heinz fell 0.7 percent after an earnings miss and cautious guidance. On the positive side, Microsoft rose 1 percent on a big earnings beat and positive comments on the outlook. Facebook rallied 5.4 percent after a revenues beat and said engagement has soared during the shutdown period.

Jobless claims rose 3.839 million in the April 25 week, and though this was moderately above Econoday's consensus for 3.5 million it marked the fourth straight decline from a late March peak of 6.867 million. From the beginning of the crisis in the March 14 week, initial claims have totaled 30.3 million from a total labor force (last measured in March) of 162.9 million. Separately, personal income fell 2.0 percent in March, the second half of which marked the beginning of the virus crisis for the US. Consumer spending fell 7.5 percent. Both of these drops were deeper than expected and are certain to have remained deeply negative during April. Monthly inflation readings in March were deflationary as expected, down 0.3 percent overall and down 0.1 percent for the core.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose by US$2.73 to US$25.27, while spot gold fell US$26.73 to US$1,687.81. The US dollar was lower against most major currencies. The US Treasury 30-year bond yield rose 3 basis points 1.28 percent while the 10-year note yield rose 1 basis point to 0.64 percent.


Virus-inspired weakness in bank, energy, and mining stocks hit equities Thursday. The Europe-wide STOXX 600 declined 2.0 percent, the German DAX was off 2.2 percent, the French CAC fell 2.1 percent, and the UK FTSE-100 declined 3.5 percent.

Larger-than-expected declines in European economic indicators showing the Covid-19 impact added to the negative mood, along with disappointment after the European Central Bank did not announce aggressive new stimulus measures after Thursday's policy council meeting. Some traders noted the market has had a big run-up lately, and positions appeared over-extended to the upside.

Bank stocks came off on the ECB outcome, with extra weakness in Lloyds Bank, off 7 percent, and Societe Generale, down 9 percent, after both issued bleak quarterly reports and announced large additions to credit reserves. The impact of the recent collapse in oil prices weakened energy stocks. UK market heavyweight Royal Dutch Shell dropped 11 percent after shocking the market with a cut to its dividend. Miners tracked weakness in oil prices, and Glencore fell 5 percent after slashing capex plans and shutting mines due to the virus.

In economic data, the French economy contracted at a much steeper than expected 5.8 percent quarterly rate at the start of the year. This was its worst performance since the data were first compiled in 1949 and weak enough to slash annual growth to minus 5.4 percent. Thursday's update incorporates only limited coronavirus effects as the lockdown did not start until the middle of March. Separately, flash data showed the Eurozone economy contracting at a record rate at the start of the year. A quarterly fall in real GDP of 3.8 percent was steeper than the weakest quarter during the worst of the global financial crisis and also sharper than market expectations. The decline reduced annual growth by more than 4 percentage points to minus 3.3 percent. Meanwhile, Eurozone HICP inflation decelerated sharply in April. A flash annual rate of 0.4 percent was down some 0.3 percentage points from March and equaled the weakest post since September 2016.

Asia Pacific

Most major Asian markets rallied Thursday, following the lead set by Wall Street Wednesday after news that trials of a coronavirus treatment, remdesivir, had shown encouraging results. Australia's All Ordinaries index outperformed with a gain of 2.5 percent, while Japan's Nikkei and Topix indices advanced 2.1 percent and 1.0 percent respectively after a holiday Wednesday. The Shanghai Composite index increased 1.3 percent.

Chinese PMI data for April published Thursday showed improvement in the non-manufacturing sector and indicate that activity in China's manufacturing sector has stabilised to some extent after the initial impact of the coronavirus outbreak but remains at a very weak level. The official CFLP manufacturing PMI index fell from 52.0 in March to 50.8 in April, while the non-manufacturing PMI index rose from 52.3 to 53.2. The Markit Manufacturing PMI headline index for China fell from 50.1 in March to 49.4 in April, indicating a small contraction in the sector, with respondents reporting a small increase in output but weak demand from both domestic and foreign clients. Official monthly activity indicators for April are scheduled for publication mid-May.

Japan's industrial production index fell 3.7 percent on the month in March after falling 0.3 percent in February, a smaller decline than the consensus forecast for a drop of 5.5 percent. In year-on-year terms, the index fell 5.2 percent after dropping a revised 5.7 percent in February. This was broadly in line with PMI survey data which also showed the manufacturing sector contracting in March, with preliminary PMI survey data released earlier this month suggesting that conditions in the sector weakened further in April.

Retail sales in Japan fell 4.6 percent on the year in March after rising 1.6 percent in February, reflecting broad-based weakness across major categories after strong stockpiling in February during the initial stage of the pandemic. Greater restrictions on businesses and households during March also likely contributed to the drop in sales.

Looking ahead*

On Friday in Asia/Pacific, Japanese PMI manufacturing and Australia PPI figures are scheduled. In Europe, UK CIPS/PMI manufacturing and UK M4 money supply reports are due. In US data, PMI manufacturing index, ISM manufacturing index, and construction spending reports are due.

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