Daily market review

United States

Equities gave up decent gains to end mostly lower Wednesday on a warning from market pundit Jeremy Grantham that the market is in a bubble, and as worries about the pandemic came back into focus. The Dow Jones industrial index declined 0.7 percent; the S&P 500 declined 0.4 percent, and the NASDAQ rose 0.2 percent.

Earlier, the market focused on a string of corporate comments reporting improving demand, and on the ongoing impact of Federal Reserve stimulus efforts. Markets also keyed late in the day on reports of rising Covid-19 infection rates and hospitalizations in several large US states, and concerns over a second wave in China. Comments from Fed Chair Jay Powell on the outlook for inflation and interest rates were not seen as breaking new ground.

Among sectors, energy, banks, real estate, utilities, telecom, and airlines led to the downside. Holding up better were technology and software. Health care was a winner, led by pharma and biotech.

Among companies in the news, Tempur Sealy, the mattress company, rose 5.1 percent as its results were not as bad as expected, and the company flagged recovering sales in May and June. Stitch Fix, the custom clothing company, rose 3.1 percent on an analyst upgrade.

On the downside, software leader Oracle fell 5.7 percent after a revenues miss. Groupon, the online coupon business, fell 21 percent after an earnings miss and warning on the virus hit to sales. ExxonMobil fell 3.3 percent as oil prices dropped.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 20 cents to US$40.53, while spot gold rose US$3.01 to US$1,729.23. The US dollar was little changed against most major currencies. The US Treasury 30-year bond yield fell 2 basis points to 1.52 percent while the 10-year note yield fell 2 basis points to 0.74 percent.


Hopes for economic recovery underpinned equities Wednesday, along with government stimulus and hopes for Covid-19 treatments. The Europe-wide STOXX 600 rose 0.7 percent, the German DAX gained 0.5 percent, the French CAC rose 0.9 percent, and the UK FTSE-100 was up 0.2 percent.

Markets expect a Eurozone recovery package and remain focused on the Federal Reserve's corporate bond buying program and other special facilities. On the negative side was news of China's partial lockdown of Beijing to curb spread of the coronavirus.

Health care stocks led the winners, followed by technology, retail, food & beverage, personal & household goods, and media. Lagging were autos, insurance, oil & gas, banks, and travel & leisure. Among companies in focus, Scottish & Southern Energy rose 8.8 percent after regulators approved its wind farm. Pandora A/S, the Danish jeweler, rose 5.3 percent after an analyst upgrade. Lufthansa fell 2.4 percent after warning that its government bailout deal is in trouble if shareholders don't endorse it at a meeting on June 25.

In economic data, the deceleration in Eurozone inflation shown in the flash estimate was confirmed in the final report for May. An unrevised 0.1 percent yearly headline rate followed April's final 0.3 percent print and means that inflation has now declined for four months in a row. Meanwhile, UK consumer prices matched market expectations in May. A flat monthly performance reduced the annual inflation rate from 0.8 percent in April to just 0.5 percent, its lowest mark since June 2016. This was the tenth consecutive month in which the yearly change has been below the 2 percent medium-term target.

Asia Pacific

Major Asian markets posted mixed results Wednesday, with regional trade data showing ongoing weakness in May but sentiment supported by news Tuesday that a steroid drug, dexamethasone, had delivered positive results for Covid-19 patients in a UK clinical trial. Australia's All Ordinaries index was the strongest performer in the region, closing up 0.8 percent on the day, while Hong Kong's Hang Seng index and the Shanghai Composite index advanced 0.6 percent and 0.1 percent respectively. Japan's Nikkei and Topix indices underperformed, falling 0.6 percent and 0.4 percent respectively.

Japanese trade data indicate that the Covid-19 pandemic continued to have a severe impact on global and regional trade flows in May, with growth in Japan's exports and imports both contracting at a sharper pace. Japan's merchandise trade deficit narrowed from a revised ¥931.9 billion in April to ¥833.4 billion in May, considerably wider than the consensus forecast for a deficit of ¥674 billion. Exports fell 28.3 percent on the year in May after dropping 21.9 percent in April with demand again weak across most major trading partners. Imports fell 26.2 percent on the year after dropping 7.1 percent previously with this deterioration largely driven by bigger falls in the value and volume of petroleum imports.

Singapore trade data published Wednesday were broadly in line with the Japanese data. Growth in non-oil domestic exports weakened considerably, falling 4.5 percent on the year in May after increasing 9.7 percent in April. Smaller increases in exports to the US and Japan and a year-on-year decline in exports to the European Union were offset only partly by a smaller decline in exports to China and Hong Kong. Total imports fell 26.2 percent on the year after dropping 13.1 percent previously.

Looking ahead*

On Thursday in Asia/Pacific, New Zealand GDP and Australian labor force data are due. In Europe, Swiss and UK central bank policy announcements are due, along with Swiss merchandise trade figures. In North America, US jobless claims, Philadelphia Fed manufacturing, and US leading indicators reports are due.

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