Daily market review

United States

US equities recovered to end flat to higher Friday after President Trump's statement on China proved milder than markets anticipated. The Dow industrial index fell 0.1 percent, the S&P 500 was up 0.5 percent, and the NASDAQ gained 1.3 percent.

In an afternoon Rose Garden appearance, Trump criticized Chinese security and economic policies, and announced he would limit Chinese student visas, but he did not say anything that the market expects to torpedo the phase one US-China trade deal.

With the Trump statement past, the market resumed its focus on the reopening story, huge government stimulus, signs of stirring in the real economy, and investor fear of missing out on the recovery in risk assets. Oil prices rallied on relief after the Trump statement, and on lower oil rig counts.

Among companies in focus, Dell Computer rose 8.9 percent on an upbeat quarterly report, despite reporting headwinds to sales. Williams Sonoma, the kitchen and home furnishings store, rose 13.8 percent on strong same-store sales and an earnings beat.

In US economic data, crisis stimulus from the government fed a 10.5 percent surge in personal income during April, a month that saw an 8.0 percent drop in wages & salaries. Personal transfer receipts is where the stimulus is tallied, and it rose 89.6 percent in the month. Consumer spending fell a monthly 13.6 percent in April with declines across all categories, especially food and food services, accommodation and health care. In another report, consumer sentiment edged lower in the final May reading, to 72.3 versus 73.7 for the mid-month flash but up slightly from April's 71.8. Current conditions actually improved sharply in May, up 8 points to 82.3 to offset a more than 4-point decline in expectations to 65.9.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 31 cents to US$35.33, while spot gold rose US$14.18 to US$1,732.75. The US dollar was mixed against major currencies. The US Treasury 30-year bond yield fell 4 basis points to 1.42 percent while the 10-year note yield fell 4 basis points to 0.65 percent.


Equities fell Friday on fears that President Trump would announce new sanctions on China and generally ratchet up the array of US-China disputes. The Europe-wide STOXX 600 declined 1.4 percent, the German DAX fell 1.7 percent, the French CAC slipped 1.6 percent, and the UK FTSE-100 dropped by 2.3 percent.

On the positive side were comments from Bank of Italy Governor Ignazio Visco, who added to market expectations for the ECB to step up its asset purchases next week, and reports that Germany is considering another fiscal stimulus package. Markets are watching next week's EU-UK Brexit talks for signs an exit deal is possible.

Banks and others with heavy exposure to China led the selloff. Others leading to the downside were travel & leisure, autos, oil & gas, insurance, media, and industrials. Holding up better were utilities, technology, telecom, retail, real estate, and health care.

Among the day's biggest losers were HSBC, off 3.7 percent, and Standard Chartered Bank, down 6 percent, to banks with close ties to Hong Kong. Rolls Royce, the luxury automaker, fell 14 percent after an S&P downgrade. Lufthansa fell 5.5 percent on a bleak operations update.

In economic data, Eurozone inflation provisionally decelerated for a fourth straight month in May. A flash yearly rate of just 0.1 percent was slightly short of market expectations and 0.2 percentage points below the 0.3 percent final April outturn. It was also the weakest reading since June 2016. Separately, German retailers had an abysmal April as the nationwide lockdown caused spending to sink. However, while volume sales fell 5.3 percent on the month, the steepest drop since January 2007, this was less than half the market consensus.

Asia Pacific

Most major Asian markets closed lower on the day Friday but advanced on the week to varying degrees. US-China relations remained a key focus for investor attention, with President Trump indicating on Thursday that he would hold a press conference on this issue Friday. Japanese data published Friday were weak but broadly in line with expectations.

Japan's Nikkei and Topix indices fell 0.2 percent and 0.9 percent respectively on the day but outperformed on the week with gains of 7.3 percent and 5.8 percent respectively. Australia's All Ordinaries index fell 1.4 percent on the day but advanced 4.7 percent on the week, while the Shanghai Composite index closed up 0.2 percent on the day and 1.4 percent on the week. Hong Kong's Hang Seng index closed down 0.7 percent on the day and was little changed on the week, up 0.1 percent with China's plans to tighten security laws in Hong Kong still a major focus for investors.

Japanese data published Friday showed further evidence of the severe impact of the Covid-19 pandemic on the economy in April as restrictions on businesses and households took effect. The unemployment rate rose for a second consecutive month from 2.5 percent in March to 2.6 percent in April, its highest level since December 2017, with employment falling on the year by 800,000 persons. Industrial production fell 14.4 percent on the year in April after dropping 5.2 percent in March, broadly in line with previously published PMI survey data, while retail sales fell 13.7 percent on the year after dropping 4.7 percent previously, the weakest growth since 1998.

India's gross domestic product increased 3.1 percent on the year in the three months to March, down from revised growth of 4.1 percent in the three months to December and broadly in line with monthly data showing the negative impact on India's economy of the Covid-19 pandemic. India's government imposed a national lockdown in late March, suggesting that this move had only a limited impact on these data but will likely weigh significantly on growth in the three months to June. The Reserve Bank of India cut policy rates earlier this month by 40 basis points 4.0 percent, taking the cumulative reduction since mid-2019 to 200 basis points. Although officials believe that recent policy measures could result in a "gradual revival" in economic activity in the second half of the fiscal year, they also consider risks to this outlook to be high and skewed to the downside.

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