Daily market review

United States

Better mood music from US-China trade talks helped spur across-the-board gains in US equities Friday, along with ongoing expectations for economic recovery. The Dow industrials rose 1.9 percent, the S&P 500 gained 1.7 percent, and the NASDAQ was up 1.6 percent.

Risk assets were soothed by news that top US and Chinese officials had agreed to "create a favorable atmosphere and conditions" to implement the phase-one trade accord, despite President Trump's threat to jettison the pact, and despite an ongoing war of words between the two sides over the origins of the global pandemic. Markets appeared unfazed by disastrous monthly US employment figures as the focus has already shifted to the third quarter and forward-looking economic indicators. Markets continue to buy into a hopeful scenario that says the worst pandemic effects are past.

Among sectors, winners included miners, retail, autos, airlines, finance, chipmakers, tobacco, health & personal care, and banks. Laggards included internet, software, utilities, pharma, and utilities.

Among companies in the news, Axon, the Taser maker, rose 23 percent after a revenues beat, and positive guidance. Zillow, the real estate broker, rose 9 percent after its CEO said the housing market has passed the worst. Herbalife, the dietary supplements business, rose 12 percent on an earnings and revenues beat. Uber, the ridesharing leader, rose 6 percent on signs of improving ride volumes in the US and Europe.

In US economic data, the catastrophic destruction of the labor market was about as expected with nonfarm payrolls falling 20.5 million in April versus Econoday's consensus for 21.5 million. The unemployment rate didn't rise quite as much as expected, but at 14.7 percent and a 10.3 percentage point surge it really can't be called good news. And this rate would have been closer to 20 percent if not for a special classification for virus effects.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose by US$1.71 to US$30.82, while spot gold fell US$8.83 to US$1,706.41. The US dollar was weaker against most major currencies but up vs. the yen. The US Treasury 30-year bond yield rose 5 basis points to 1.38 percent while the 10-year note yield rose 3 basis points to 0.67 percent.


Positive earnings reports and easing worries over a renewed US-China trade war gave equities a boost Friday The Europe-wide STOXX 600 rose 0.9 percent, the German DAX gained 1.4 percent, the French CAC rose 1.1 percent, and the UK FTSE-100 was up 1.4 percent.

Other positives included news the ECB is considering expanding its asset purchases to include junk bonds to fight the pandemic fallout, and agreement by Eurozone governments to increase low-cost lending through the European Stabilization Mechanism.

Among the day's winners were: ING, the Dutch bank, up 3.4 percent, after announcing an earnings beat; and Siemens, the German manufacturer, up 5.9 percent as the market liked the German manufacturer's earnings and cost-cutting plan. Automakers outperformed on the better trade news, with BMW, the German luxury automaker up 2.5 percent. Industrials, telecom, travel & leisure, and chemicals all outperformed.

Asia Pacific

Major Asian markets posted solid gains Friday, with most also closing the week higher. Reports of discussions between senior US and Chinese officials on the next stage of trade negotiations provided some support to investor sentiment. Japan's Nikkei and Topix indices outperformed on the day with increases of 2.6 percent and 2.2 percent respectively and advanced 2.9 percent and 1.9 percent respectively on the week. The Shanghai Composite index closed up 0.8 percent on the day and 1.2 percent on the week. Australia's All Ordinaries index rose 0.7 percent on the day and 3.1 percent on the week, with the national government announcing Friday plans to ease social and business restrictions put in place to curb the spread of the coronavirus but state governments indicating that these plans will be implemented cautiously. Hong Kong's Hang Seng index rose 1.0 percent on the day but underperformed on the week with a decline of 1.7 percent.

Japanese data published Friday showed a drop in household spending in March and a sharp contraction in the services sector in April. Household spending fell 6.0 percent on the year in March after declining 0.3 percent in February, with the impact of the coronavirus pandemic adding to weakness that had already been evident since an increase in consumption tax rates last October. The Markit PMI survey for the services sector showed a fall in its headline index from 33.8 in March to 21.5 in April, the lowest level since the survey began in 2007. Survey respondents reported weaker orders, new export orders, and employment, a sharp drop in business confidence, and falls in both input costs and selling prices. With the manufacturing sector survey published last week also showing a bigger contraction, the composite index fell from 36.2 in March to a record low of 27.8 in April.

The Reserve Bank of Australia published its quarterly Statement on Monetary Policy Friday after leaving policy rates on hold at a record low of 0.25 percent at its monthly meeting earlier in the week. Consistent with public comments made in recent weeks, officials expect both the global economy and Australia's economy to contract sharply in the first half of the year in response to the global coronavirus pandemic. Looking further ahead, they acknowledge the outlook is highly uncertain but have a baseline scenario of the economy recovering in the second half of the year and into 2021. Nevertheless, they expect inflation will remain below their 2.0 percent to 3.0 percent target range for the foreseeable future and remain committed to keeping policy rates at or below current levels until conditions improve.

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