Daily market review

United States

A report the Trump administration is preparing a $1 trillion infrastructure plan gave stocks a boost Tuesday. Reports suggesting a scaling back in US-China tensions in connection with the Huawei conflict added to the risk-on mood. The Dow Jones industrial index rose 2.0 percent; the S&P 500 gained 1.9 percent, and the NASDAQ was up 1.8 percent.

The market also reacted favorably to news of a UK clinical trial showing some success in treating Covid-19 patients with a steroid drug, dexamethasone. An upside surprise on US retail sales was another positive. Markets pared gains on comments from Fed Chair Jay Powell, including his statement that the recovery would be slow and more fiscal stimulus was likely to be needed, and his comment that the Fed would avoid running recklessly through the corporate bond market in making its asset purchases.

All sectors advanced, with riskier stocks leading and defensives lagging. Best performers included energy, health care, and materials, while lagging though still higher were communications services, financials, plus utilities and real estate. Energy stocks were bolstered by a rally in crude oil prices after the International Energy Agency projected a big rebound in oil demand in 2021. ConocoPhillips was up 4.1 percent.

Among companies in the news, Delta Airlines rose 2.8 percent after saying it will add nearly 1,000 flights next week and will resume flights to China. McDonald's, the Dow member, rose 0.4 percent after highlighting improving sales and reopening stores.

In US economic data, government subsidies to consumers during the virus employment catastrophe, together with pent-up demand, helped lift retail sales by 17.7 percent in May, far above expectations. Separately, the gain for industrial production was much more subdued, up 1.4 percent on the month in May and well below Econoday's consensus for 2.9 percent. But manufacturing, boosted by vehicle production, rose 3.8 percent to just exceed Econoday's consensus for 3.6 percent.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.03 to US$40.73, while spot gold fell US1.49 cents to US$1,726.22. The US dollar rose against most major currencies. The US Treasury 30-year bond yield rose 7 basis points to 1.53 percent while the 10-year note yield rose 3 basis points to 0.75 percent.


Government stimulus helped equities rally Tuesday, including the Federal Reserve's expansion of its corporate bond buying program launched Monday, and expectations for another US fiscal package. The Europe-wide STOXX 600 rose 2.9 percent, the German DAX jumped 3.4 percent, the French CAC rose 2.8 percent, and the UK FTSE-100 was up 2.9 percent.

Gains were across the board: construction, telecom, banks, industrials, technology, oil & gas, and miners, while travel real estate, and autos lagged.

In economic data, ZEW's June survey found analysts slightly less pessimistic about the current state of the German economy and also notably more optimistic about the medium-term outlook. The current conditions index moved off May's record low with a 10.4 point rise to minus 83.1. Expectations were up a sharper 12.4 points at 63.4, equaling their highest mark since February 2006.

Asia Pacific

Major Asian markets surged Tuesday, with regional investors reacting positively to the Federal Reserve's announcement Monday that it will broaden its asset purchase program to include individual corporate bonds. Reports that the Trump Administration is preparing a $1 trillion infrastructure stimulus package also supported investor sentiment.

Japan's Nikkei and Topix indices were among the stronger performers in the region, closing up 4.9 percent and 4.1 percent respectively, while Australia's All Ordinaries index advanced 3.9 percent. Hong Kong's Hang Seng index and the Shanghai Composite index rose 2.4 percent and 1.4 percent respectively.

The Bank of Japan's Monetary Policy Board left policy settings on hold at the conclusion of its June meeting Tuesday, in line with consensus forecasts, with the short-term policy rate for excess reserves remaining at minus 0.1 percent. Officials noted that the impact of the Covid-19 pandemic on the Japanese economy has been severe and that the outlook remains highly uncertain. Nevertheless, officials retained their view that price pressures will be very subdued and that policy rates will likely stay at or below current levels for the foreseeable future.

Looking ahead*

On Wednesday in Asia/Pacific, Japanese merchandise trade and Singapore merchandise trade reports are due. In Europe, UK CPI, UK PPI, and Eurozone HICP figures are scheduled. In North America, Fed Chair Jerome Powell will testify again, and US housing starts and Canadian CPI reports are due.

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