Daily market review

United States

Expectations for wider reopenings, talk of US economic bottoming, and rising oil prices bolstered equities Tuesday but major indexes faded into the US close. Easing in worries about a renewed US-China trade war gave the market support, along with Fed Vice Chair Richard Clarida's comment that he sees growth resuming in the third quarter. The Dow industrials rose 0.6 percent, the S&P 500 rose 0.9 percent, and the NASDAQ rose 1.1 percent.

Markets keyed on reports that California and hard-hit New York State are contemplating phased easing of business restrictions. Headlines pointing to vaccine development progress added to positive sentiment. On the US-China front, risk assets were bolstered by comments from a US official suggesting US sanctions are unlikely despite heated rhetoric from President Trump.

Among sectors, health care, chipmakers, technology, the FAANGs, big oil, and homebuilders led to the upside. Lagging were airlines, food, department stores, media, packaging, and hotels.

Among companies in the news, Pfizer rose 2.4 percent after news it has begun accelerated trials of several vaccines for COVID-19 and aims to have one ready in the fall. Dupont was unchanged after an earnings and revenues beat, and highlighting its strong financial position and business outlook post-pandemic. Earlier, the big chemicals maker was up strongly.

In US economic data, at 41.8, ISM's non-manufacturing understated the weakness of April after understating the weakness of March when the index was improbably strong at 52.5. Skewing the composite higher were supplier deliveries where delays are considered positive indications of strength in demand not, as currently the case, the result of dislocations and shortages. Useful measures in this report included the new orders index, which fell 20 points to a sharply contractionary 32.9, and business activity (production), which fell 22.0 points to 48.0. Employment fell 17.0 points to 30.0.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose by US$3.34 to US$31.12, while spot gold rose US$4.36 to US$1,708.69. The US dollar was mixed against major currencies. The US Treasury 30-year bond yield rose 5 basis points to 1.33 percent while the 10-year note yield rose 2 basis points to 0.66 percent.


The latest batch of headlines about reopening the European economy and positive earnings helped equities rebound Tuesday after recent declines. The Europe-wide STOXX 600 rose 2.2 percent, the German DAX gained 2.5 percent, the French CAC rose 2.4 percent, and the UK FTSE-100 was up 1.7 percent.

Risk assets reacted favorably to a report that the UK is planning to scale back job furloughs and government subsidies, and to Italy's moves to ease lockdown restrictions. Meanwhile, markets looked past a German court ruling that cast doubt on the legality of the Bundesbank's participation in the ECB's asset purchase program.

Among sectors, oil & gas led winners as oil prices bounced, and as French supermajor Total (up 8 percent) maintained its dividend despite a huge drop in earnings. Repsol, the Spanish oil company, rose 13 percent after an earnings beat. Other outperformers included financial services, industrials, autos, real estate, basic resources, travel, and technology. Lagging but still higher were retail, food & beverage, personal & household goods, insurance, and banks.

Among companies in focus, German food delivery company HelloFresh rose 7.7 percent as it reported booming sales amid virus lockdowns. Volkswagen rose 6 percent, despite warning of a deep recession in the auto industry, as it restarted production at its German plants, and markets hope for a recovery in consumption.

Asia Pacific

Markets in China and Japan were again closed for holidays Tuesday, with gains posted elsewhere in the region. Australia's All Ordinaries index closed up 1.6 percent after the Reserve Bank of Australia left policy rates on hold, while Hong Kong's Hang Seng index rose 1.1 percent after dropping sharply Monday.

The RBA's policy decision Tuesday was in line with the consensus forecast, with the main policy rate left unchanged at 0.25 percent. Officials are also continuing to target a 3-year government bond yield of 0.25 percent but advised that recent improvements in the functioning of the domestic bond market mean they have been able to scale back the size and frequency of bond purchases to meet that target. The statement accompanying today's decision stressed the likely near-term impact of the coronavirus pandemic both on the global economy and domestic activity but expressed hope that public health measures and policy stimulus would drive a recovery both at home and abroad later in the year and into 2021. Officials stressed, however, that they expect inflation to remain below their target range of 2.0 percent to 3.0 percent over the next two years and reaffirmed their commitment that policy rates will not be raised until they are confident that their employment and inflation objectives are met.

Looking ahead*

On Wednesday in Asia/Pacific, Chinese merchandise trade, New Zealand labor market conditions, Hong Kong PMI, Singapore PMI, and Australian retail sales reports are scheduled. In Europe, German manufacturers orders, French PMI composite, German PMI composite, Eurozone PMI composite, UK PMI construction, and Eurozone retail sales reports are due. In North America, US ADP employment and US EIA petroleum status reports are due.

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