Daily market review

United States

Expectations for a near-term economic recovery took a knock Wednesday as many US states reported steep gains in Covid-19 cases and hospitalizations. The Dow Jones industrial index lost 2.7 percent; the S&P 500 was off 2.6 percent, and the NASDAQ was off 2.2 percent.

The virus situation raised worries about renewed lockdowns. California Gov. James Newsome said he's prepared to order renewed restrictions if needed. In an odd turnabout, New York, Connecticut, and New Jersey said travelers arriving from states where cases are rising sharply would be obliged to enter a two-week quarantine.

Adding to the day's bearishness, Bloomberg reported the US is considering imposing tariffs on $3.1 billion in EU and UK goods, which threatens to renew the trans-Atlantic trade dispute.

All sectors were lower, with energy hit hardest as oil prices retreated. Banks and brokers led financials down. Airlines took a hit on the virus fears. Discounters and health & personal care stocks helped consumer staples outperform.

Dow Inc., the chemical company, dropped 6.9 percent, and Boeing was off 5.9 percent to lead the Dow industrials lower. Among companies in the news, Apple fell 1.8 percent after saying it may close more stores because of the spreading virus. Ship cruise companies Norwegian Cruise Lines, down 12.4 percent, and Carnival, down 11.1 percent, were hit by downgrades at Barclays.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$2.36 to US$40.07, while spot gold fell US$4.70 to US$1,765.16. The US dollar rose sharply against most major currencies. The US Treasury 30-year bond yield fell 5 basis points 1.44 percent while the 10-year note yield fell 3 basis points to 0.68 percent.


Renewed worries about US tariffs on European goods together with Covid-19 hit equities Wednesday. The Europe-wide STOXX 600 dropped 2.8 percent, the German DAX fell 3.4 percent, the French CAC declined 2.9 percent, and the UK FTSE-100 was off 3.1 percent.

Risk assets reacted badly to more news of rising Covid-19 cases in the US and a renewed lockdown in one German state, and to a Bloomberg report that the US Trade Representative is considering tariffs on EU goods.

Cyclicals including automakers, banks, oil & gas, and travel led the selloff. Holding up better were telecom, utilities, technology, and personal & household goods – but all sectors declined.

Among companies in the news, Germany's Wirecard dropped 31 percent after more bad news about its accounting scandal. Air France was off 5.5 percent on news of layoffs, and Daimler fell 6 percent on trade worries and poor vehicle registration data. Airbus fell 5.4 percent on concern about US trade sanctions.

In economic news, Ifo's June survey of German business sentiment found another significant improvement in morale, again led by expectations. The business climate indicator stood at 86.2, up a record 6.5 points from 79.7 in May, on the strong side of the market consensus and a 4-month high.

Asia Pacific

Moves in major Asian markets Wednesday were mixed but generally modest, with a light regional data calendar keeping investor focus on the potential impact of the recent increase in Covid-19 cases in parts of the US, Japan and Australia.

Hong Kong's Hang Seng index fell 0.5 percent after shares in tech company Tencent Holdings pulled back from a record high recorded Tuesday, while Japan's Nikkei and Topix indices closed down 0.1 percent and 0.4 percent respectively. The Shanghai Composite index and Australia's All Ordinaries index advanced 0.3 percent and 0.2 percent respectively.

The Reserve Bank of New Zealand left its official cash rate unchanged at 0.25 percent on Wednesday and also retained the upper limit for its asset purchase program at NZ$60 billion to help keep domestic interest rates low. Back in March, policy rates were cut by 75 basis points as part of efforts to counter the virus impact on the domestic economy. Officials expect this impact to persist but acknowledged that recent public health measures have met with some success, allowing restrictions on businesses and households to be eased and economic activity to resume earlier than they anticipated last month. Nevertheless, they consider that risks to the outlook remain "skewed to the downside" and pledged to take additional easing steps if required in coming months.

Looking ahead*

On Thursday in Asia/Pacific, the New Zealand merchandise trade report is due. In Europe, GfK consumer climate, UK CBI distributive trades, and ECB policy council minutes are on tap. In North America, US durable goods, jobless claims, international trade, and GDP reports are scheduled.

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