Daily market review

United States

Economic data confirming the deepening recession and rising US-China discord hurt equities Thursday. The Dow industrials eased 0.4 percent, the S&P 500 declined 0.8 percent, and the NASDAQ was off 1.0 percent.

US-China tensions rose as President Trump criticized China over the pandemic, its trade and military practices, and human rights violations. The US threatened more restrictions on firms doing business with Huawei. For its part, China ordered Hong Kong to implement a new national security law, which is expected to spur renewed protests and raise tensions with the West.

Among stock sectors, laggards included entertainment, chipmakers, railroads, miners, and energy. Holding up better were airlines, insurers, homebuilders, and aerospace & defense.

Among companies, video game-maker Take-Two Interactive fell 6 percent as the market reacted poorly to the firm's 2021 guidance, despite strong results. Best Buy, the electronics retailer, fell 4.4 percent after suspending its guidance and warning on the impact of the virus on sales. On the upside, Macy's rose 3 percent after reporting better online sales. Starbucks, the coffee chain, rose 0.4 percent as it reported many stores reopening.

In US economic data, initial jobless claims fell 249,000 in the May 16 week to a 2.438 million level that compared very closely with Econoday's consensus for 2.375 million. Over the last nine weeks, 38.6 million Americans have filed initial unemployment claims. Separately, the Philadelphia Fed's manufacturing index came in at minus 43.1 this month which was close to expected. This score is less disastrous than April's minus 56.6 but still disastrous.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 29 cents to US$36.17, while spot gold fell US$24.16 to US$1,725.32. The US dollar rose against most major currencies. The US Treasury 30-year bond yield fell 2 basis points to 1.39 percent while the 10-year note yield fell 2 basis points to 0.67 percent.


Worries about rising US-China tensions hurt equities Thursday, with trade-sensitive sectors among the weakest. The Europe-wide STOXX 600 declined 0.8 percent, the German DAX lost 1.4 percent, the French CAC fell 1.2 percent, and the UK FTSE-100 fell 0.9 percent.

Talk of negative official interest rates in the UK and news that the UK sold 3-year gilts at a negative yield added to perceptions of further deterioration in the economic picture.

Among sectors, worst off were banks, telecom, oil & gas, basic resources, insurance, and autos. Holding up better were telecom, retail, utilities, construction, and travel & leisure.

Among companies in the news, Altice Europe, the telecom, dropped 14 percent on disappointing earnings. Lufthansa fell 1.3 percent after saying it is in talks for a government bailout. On the positive side, Easyjet rose 5 percent on news it will resume flights in mid-June.

In economic data, the Eurozone composite flash weighed in at only 30.5, higher than April's 13.6 but slightly below market expectations and still a long way short of the 50-expansion threshold. In other words, private sector business activity contracted sharply again, albeit at a reduced rate compared with April. Separately, May was also another miserable month for UK private-sector business activity. At 28.9 the flash made good ground versus April's 13.8 and also beat market expectations. However, it too was well short of 50 and so indicative of a second successive sizeable contraction in real GDP.

Asia Pacific

Most major Asian markets closed moderately lower Thursday after the release of weak Japanese data, as regional investors were focused on key European and US data scheduled for release later in the day. Japan's Nikkei and Topix indices both closed down 0.2 percent, the Shanghai Composite index fell 0.6 percent, Hong Kong's Hang Seng index dropped 0.5 percent, and Australia's All Ordinaries index fell 0.3 percent.

Japan's merchandise trade balance shifted from a surplus of ¥5.4 billion in March to a deficit of ¥930 billion in April, much wider than the consensus forecast for a deficit of ¥400 billion. Exports fell 21.9 percent on the year in April after dropping 11.7 percent in March, with demand again weak across most major trading partners. Imports fell 7.2 percent on the year after dropping 5.0 percent previously, driven down by a much bigger fall in both the volume and value of petroleum imports.

Flash PMIs for Japan published Thursday showed conditions in the manufacturing sector have weakened further this month as the impact of the pandemic continues. The flash for May was 38.4, down from 41.9 in April and its lowest level since 2009. The May flash for the services sector was 25.3, up from 21.5 but still indicating severe contraction in the sector. Survey respondents in both sectors reported large declines in orders and employment as well as weak price pressures.

Prices are down in Hong Kong where headline consumer price index increased 1.9 percent on the year in April, down from 2.3 percent in March. Headline CPI rose 0.2 percent on the month, after falling 0.2 percent previously. Excluding the impact of various government measures, mainly aimed at providing support to low-income households, Hong Kong's underlying inflation rate fell from 2.6 percent in March to 2.3 percent in April, mainly reflecting changes in rental costs and fuel prices. Officials expect inflation to moderate further in coming months given weakness in domestic and external activity and recent currency appreciation.

Looking ahead*

On Friday in Asia/Pacific, New Zealand retail trade and Japanese CPI reports are scheduled. In Europe, UK public sector borrowing and UK retail sales reports, and the ECB minutes are scheduled for release. In North America, the Canadian retail sales report is due.

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