Daily market review

United States

Optimism about global reopening and improving economic data kept the equities rally going Wednesday, with cyclicals and value stocks again outperforming. The Dow Jones industrial index rose 2.1 percent; the S&P 500 gained 1.4 percent, and the NASDAQ was up 0.8 percent.

Among sectors, financials paced the winners, with banks and insurers leading. Industrials, energy, materials, and consumer discretionary shares were also among the best performers. Lagging but still higher were technology, communications services, including the FAANGs, and consumer staples. Health care was the only decliner, as pharma (the pandemic darling) has faded.

Among companies in focus, Zoom Video Communications, which has boomed during the lockdown, rose 7.6 percent on a huge jump in revenues, in-line earnings, and much better 2020 guidance. CrowdStrike, the cybersecurity company, rose 6.3 percent on a big revenues beat and increased guidance. Microchip Technology rose 12.3 percent after boosting its guidance and saying pandemic disruptions have eased. On the downside, Campbell's Soup fell 6.1 percent as the market sees its booming sales slowing as lockdowns are ending.

In US economic data, ADP estimated private payrolls will fall 2.760 million in Friday's employment report for May. Econoday's consensus for ADP's estimate was for a much deeper loss of 8.663 million jobs with forecasters seeing actual private payrolls in Friday's employment report falling 6.500 million. Separately, ISM's non-manufacturing index was 45.4 in May to indicate no worse than moderate-to-significant contraction in composite activity. New orders at 41.9 are less promising than the headline but did rise 10 points from April, while backlogs continued to contract though not severely at 46.4.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 6 cents to US$39.56, while spot gold fell US$30.46 to US$1,698.02. The US dollar weakened against most major currencies. The US Treasury 30-year bond yield rose 6 basis points to 1.55 percent while the 10-year note yield rose 7 basis points to 0.76 percent.


Better economic data and expectations for more stimulus from the European Central Bank and elsewhere boosted equities again Wednesday. The Europe-wide STOXX 600 rose 2.5 percent, the German DAX rose 3.9 percent, the French CAC gained 3.4 percent, and the UK FTSE-100 was up 2.6 percent.

Markets reacted favorably as more European countries have eased lockdowns this week, and on expectations for increased bond buying from the ECB. Investors anticipate more spending from Germany and other European governments. Meanwhile, Chinese and European PMI data appeared to signal the worst of the pandemic economic effects have passed.

Insurers were among the day's big winners after AXA (up 9 percent) said it would pay its dividend. Allianz was up 8.8 percent and Prudential gained 8 percent. Other winners included travel & leisure and automakers.

In economic data, the Eurozone economy in May shrank by rather less than previously indicated according to the revised PMI data. The final composite output index weighed in at 31.9, up from its 30.5 flash mark and a final 13.6 reading in April. The headline revision was wholly attributable to a better performance by services where the 28.7 flash was revised to 30.5, now an 18.5-point increase from April. Separately, the UK service sector PMI was revised up from 27.8 to 29.0 in the final report for May. This was 15.6 points stronger than its 13.8-point final showing in April.

Asia Pacific

Major Asian markets closed higher Wednesday, with regional investors increasingly confident that measures to curb the Covid-19 pandemic and its economic impact are starting to work. Economic data published Wednesday were in some cases very weak, but Chinese data showed a strong improvement in activity, boosting hopes that similar improvements may be seen elsewhere in coming months as authorities ease restrictions and substantial policy stimulus takes effect.

Australia's All Ordinaries index outperformed, closing up 1.8 percent despite the release of GDP data indicating that the Australian economy has entered into recession for the first time in 30 years. Hong Kong's Hang Seng index also posted a solid gain, up 1.4 percent, while Japan's Nikkei and Topix indices advanced 1.3 percent and 0.7 percent respectively. The Shanghai Composite index closed up 0.1 percent.

Australia's GDP fell 0.3 percent in the first quarter, weakening sharply from an increase of 0.5 percent in the fourth quarter. Economic activity in Australia was impacted early in the quarter by serious wildfires and late in the quarter by disruptions caused by the virus. The impact of the pandemic will likely be more evident in GDP data for the second quarter. This, in turn, suggests that Australia will almost certainly record a technical recession with two consecutive quarters of GDP declines, though officials remain confident that a recovery will begin in the second half of the year.

The Markit China PMI survey's business activity index for the services sector rose sharply from 44.4 in April to 55.0 in May. This indicates that activity in the sector expanded for the first time since January and at the fastest pace since 2010.

Other PMI surveys published Wednesday, however, showed that conditions remained very weak elsewhere in the region in May, with public health measures and weak external demand still clearly having a significant negative impact. The business activity index for the services sector rose from 21.5 in April to 26.5 in May for Japan and from 5.4 to 12.6 for India, indicating that the sector contracted sharply again in both countries, as did the equivalent surveys for the manufacturing sector earlier in the week. Meanwhile, the economy-wide PMI survey for Singapore and Hong Kong also showed further declines in activity, with the headline index falling from 28.1 to 27.1 for Singapore and increasing from 36.9 to 43.9 in Hong Kong.

Looking ahead*

On Thursday in Asia/Pacific, Australian merchandise trade and retail sales reports are due. In Europe, the ECB policy announcement, plus Swiss CPI, UK PMI construction, Eurozone retail sales reports are scheduled. In North America, US international trade, US jobless claims, US productivity and costs, and Canadian merchandise trade reports are due.

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