Daily market review

United States

Declines in value and cyclical plays depressed US equities Wednesday as these sectors faced selling after big recent gains. The Fed's stand-pat policy announcement matched expectations as the central bank assured markets it will continue to use all its tools and will keep its asset purchases "at least at the current pace." The Dow Jones industrial index declined 1.0 percent, the S&P 500 was off 0.5 percent, but the NASDAQ rose 0.7 percent.

Momentum stocks outperformed, with the FAANGs rising, along with health care and tech stocks, especially software. The market was depressed by reports of rising Covid-19 cases in US states that have reopened. On the positive side was more commentary from banks on better consumer credit trends.

Among sectors, energy was a laggard with exploration & production stocks especially weak. A bearish update from Wells Fargo, off 9 percent, weighed on bank stocks. Industrials were hurt by a selloff in airlines on pandemic worries. Tech shares were the day's winners with help from Apple, up 2.6 percent, and also chipmakers. Health care gained, supported by Johnson & Johnson, up 1.3 percent, on word it will accelerate its Covid-19 vaccine trials.

Among companies in focus, JetBlue fell 11.1 percent on a downgrade at JP Morgan. Chico's FAS, the clothing retailer, dropped 28 percent on an earnings and revenues miss. Starbuck's declined 4 percent after guiding its Q3 earnings lower. On the positive side, Tesla rose 9 percent on a report it will ramp up production of its new class 8 truck. TrueCar, the online auto market, rose 10 percent on analyst upgrades. Five Below, the retailer, rose 9.4 percent on news it will reopen many of its stores.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 31 cents to US$41.28, while spot gold rose US$24.88 to US$1,738.86. The US dollar weakened against most major currencies. The US Treasury 30-year bond yield fell 7 basis points to 1.51 percent while the 10-year note yield fell 10 basis points to 0.73 percent.


Weakness in travel, banks, and other sectors pushed equity indexes slightly lower Wednesday as investors awaited the Fed's policy announcement. Travel stocks were hit by renewed worries about resurgent Covid-19 cases. The Europe-wide STOXX 600 declined 0.4 percent, the German DAX declined 0.7 percent, the French CAC fell 0.8 percent, and the UK FTSE-100 eased 0.1 percent.

Among sectors, worst performers included travel & leisure, oil & gas, autos, banks, construction, and real estate. Holding up best were personal & household goods, health care, and basic resources.

Among companies in the news, Lufthansa fell 6.6 percent after a downgrade at UBS, while French tire maker Michelin fell 4.1 percent on a downgrade from Barclays. ProSiebenSat, the German mass media company, fell 3.5 percent on news it is not in merger talks. On the positive side, Iditex, the Spanish clothing retailer, rose 1.9 percent on an earnings beat and favorable online sales outlook.

In economic data, French industrial production dropped on coronavirus effects in April. Having already fallen 16.2 percent on the month in March, output declined an even steeper 20.1 percent.

Asia Pacific

Most major Asian markets were little changed Wednesday, with regional investors focused on the upcoming FOMC announcement and updated guidance from the Federal Reserve on the US economic outlook. Japan's Nikkei and Topix indices advanced 0.2 percent and fell 0.2 percent respectively, while the Shanghai Composite index closed down 0.4 percent, Australia's All Ordinaries index closed up 0.1 percent and Hong Kong's Hang Seng was unchanged.

China's headline consumer price index increased 2.4 percent on the year in May, slowing from 3.3 percent in April and below the consensus forecast of 2.7 percent. Food prices rose 10.6 percent, down from 14.8 percent in April. China's producer price index for May fell 3.7 percent on the year, down from a fall of 3.1 percent in April and mainly reflecting the impact of a bigger drop in energy prices. Total new yuan loans made by Chinese banks in May amounted to CNY1,480 billion, down from CNY1,700 billion in April, but well above levels recorded in May 2019 and May 2018. This stronger-than-normal level of lending likely reflects ongoing efforts to provide additional credit and liquidity in response to the pandemic.

Japan's producer price index fell 2.7 percent on the year in May after falling 2.3 percent in April. This is the third consecutive year-on-year decline in producer prices and the biggest since 2016. As in the case of China, the further slowdown was mainly driven by a sharper fall in energy prices. Machinery orders data for April provided further evidence of the severe impact of the Covid-19 pandemic on Japanese economic activity. Core orders fell a monthly 12.0 percent, down from a decline of 0.4 percent in March, with growth weakening in both the manufacturing and non-manufacturing sectors.

Looking ahead*

On Thursday in Europe, the Italian industrial production report is scheduled. In North America, US jobless claims and PPI-FD reports are on tap.

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