Daily market review

United States

Pandemic worries hurt risk assets Friday after Arizona and Florida reported big increases in Covid-19 cases and Apple announced it would temporarily shut stores in several southern states. The Dow Jones industrial index declined 0.8 percent; the S&P 500 declined 0.6 percent, and the NASDAQ was unchanged.

Major indexes gave up initial strong gains on the virus news and after Boston Fed President Eric Rosengren offered a dour view on the economic outlook and impact of the pandemic. Rosengren said there is a big risk associated with reopening the economy too fast. Fed Vice Chair Randall Quarles contributed to the negative mood when he said the Fed would require bank stress tests to include additional negative pandemic scenarios. Quadruple-witching pressures added to the day's volatility.

Among sectors, real estate fared worst. Industrials were hit by a selloff in airlines as travel stocks suffered from the virus effect. Banks led financials lower, along with technology and communications services. Holding up better were energy shares as oil has perked up. Consumer staples rose with help from discount retailers, and strength in Amazon lifted discretionary retail. Health care fared best on the pandemic narrative.

Among companies in the news, Novovax, the vaccine maker, rose 9.5 percent on an upgrade at Cantor Fitzgerald. Spotify, the music streaming service, rose 2.7 percent after an upgrade at Rosenblatt Securities. Penn National Gaming rose 1.3 percent after the gambling company said most of its stores have reopened. Occidental Petroleum rose 0.2 percent after Suntrust upgraded the stock to buy. On the downside, Carmax fell 6.2 percent after the online car broker said its sales have been hit badly by closures due to the virus. Slack Technologies fell 3.2 percent after a downgrade at Goldman Sachs.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 61 cents to US$42.10, while spot gold rose US$17.52 to US$1,742.85. The US dollar rose against most major currencies but weakened vs. the yen, the Australian dollar, and the Chinese yuan. The US Treasury 30-year bond yield fell 1 basis point to 1.47 percent while the 10-year note yield fell 1 basis point to 0.70 percent.


Focus on a pending E750 billion EU aid package and a positive surprise on UK retail sales helped equities edge up Friday. The Europe-wide STOXX 600 rose 0.6 percent, the German DAX gained 0.4 percent, the French CAC rose 0.4 percent, and the UK FTSE-100 rose 1.1 percent.

Among sectors, best performers were technology, utilities, media, health care, food & beverage, and personal & household goods. Lagging were real estate, autos, insurance, chemicals, construction, industrials, and basic resources.

Among companies in the news, Lufthansa ended down 0.4 percent after its biggest shareholder, billionaire Heinz Thiele, agreed to talks with the government over its bailout plans for the troubled airline. Thiele previously opposed the bailout. Wirecard, the German financial payments company, dropped 33 percent on top of Thursday's 60 percent plunge after its auditor declined to certify the company's books and the firm said it was missing more than US$2 billion.

In economic news, UK retail sales rose 12.0 percent in May versus the start of the quarter, nearly double market expectations and enough to lift annual growth from minus 22.7 percent to minus 13.1 percent. However, despite the unprecedented monthly spurt, purchases were still 13.1 percent short of their pre-Covid-19 level in February.

Asia Pacific

Most major Asian markets closed higher on the day Friday, extending gains made earlier in the week. The regional data calendar was relatively light, keeping the focus on Covid-19 developments. Chinese authorities expressed confidence that a recent outbreak in Beijing has been contained, but concerns persist about higher cases in parts of the United States. The Shanghai Composite index outperformed on the day with an increase of 1.0 percent and was also one of the stronger performers on the week, closing up 1.6 percent. Australia's All Ordinaries index was little changed on the day, up 0.2 percent, but closed up 1.7 percent on the week, while Hong Kong's Hang Seng index advanced 0.7 percent on the day and 1.4 percent on the week. Japan's Nikkei and Topix indices closed up 0.6 percent and fall on the day respectively, and both advanced 0.8 percent on the week.

Japanese inflation data released Friday showed price pressures remain subdued in May. Headline CPI inflation was unchanged at 0.1 percent, with food price increasing at the same pace as they did in April, housing costs rising at a rising at a slightly faster pace, and utilities charges falling at a slightly faster pace. Core CPI, which excludes fresh food prices, fell 0.2 percent on the year, as it did in April, while the Bank of Japan's preferred measure of underlying inflation, CPI excluding fresh food and energy prices, increased 0.4 percent on the year, up from 0.2 percent previously.

The minutes of the BoJ's meeting held April 27 and the minutes of an unscheduled meeting held May 22 showed the discussion at these meetings in line with the statements published when they concluded. Policy rates were left on hold at both of these meetings, as they were at the most recent meeting held earlier this month, but the minutes provided more details of some of the additional measures that officials have implemented as part of efforts to offset the impact of the Covid-19 pandemic on the Japanese economy.

Preliminary estimates show Australian retail sales rose 16.3 percent on the month in May, rebounding sharply from a drop of 17.7 percent in April. The sharp fall in April and the increase in May were both records and largely reflected the impact of the initial tightening and then subsequent easing of restrictions on households and businesses to curb the spread of the Covid-19 virus. Spending on dining out and clothing were particularly strong after sharp declines previously. Headline retail sales rose 5.3 percent on the year in May.

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