Daily market review

United States

Equities retreated Tuesday after their recent run-up as concerns returned over the sustainability of the global recovery and the market's rally amid surging US virus cases. The Dow Jones industrial index declined 1.5 percent, the S&P 500 slipped 1.1 percent, and the NASDAQ eased 0.9 percent.

Warnings that rising Covid-19 cases are prompting consumers and businesses to retrench and causing a "leveling off" in the recovery came from Atlanta Fed President Raphael Bostic and Cleveland Fed President Loretta Mester, and both pointed to the need for more fiscal stimulus. Meanwhile, reports suggested the White House and Senate Republicans are pushing for a new round of spending totaling $1 trillion or less, while House Democrats have already passed a $3.5 trillion plan.

Among sectors, worst off were industrials, energy, and financials, while communications services and consumer staples held up best. Among companies, Shake Shack, the fast food company, fell 6.6 percent after a revenues miss.

United Airlines fell 7.6 percent after a report that its reservations have fallen back following the new requirement that many visitors to New York, Connecticut, and New Jersey quarantine for two weeks. Moelis, the investment bank, fell 7 percent on a downgrade at JP Morgan in light of weak merger & acquisitions business.

The day's big winner was Vivint Solar, up 38 percent after announcing it will be acquired by rival Sunrun, which rose 23 percent. Novovax, the vaccine company, jumped 32 percent after receiving a big award for Covid-19 vaccine development.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil was off 1 cent to US$42.80, while spot gold rose US$20.64 to US$1,796.99. The US dollar rose against most major currencies. The US Treasury 30-year bond yield fell 7 basis points to 1.37 percent while the 10-year note yield declined 4 basis points to 0.64 percent.


Equities gave up some recent gains Tuesday as US virus cases continued to accelerate and the European Commission issued a bleak forecast for Europe. The Europe-wide STOXX 600 declined 0.6 percent, the German DAX fell 0.9 percent, the French CAC lost 0.7 percent, and the UK FTSE-100 was off 1.5 percent.

The European Commission said the EU would see a deeper than expected contraction in 2020 and a weaker-than-expected recovery in 2021. A separate forecast from the OECD said unemployment will continue to rise in the developed world and warned against a premature end to government stimulus. A miss on German industrial production added to the negative view.

Among sectors, banks, real estate, telecom, technology, insurance, and oil & gas led the selloff. Holding up relatively better were basic resources, chemicals, industrials, utilities, construction, and retail.

Among companies, Finnair fell 16 percent after issuing a new batch of shares to raise capital. Bayer, the German chemicals giant, fell 5 percent amid concerns about a collapse of its legal settlement of claims from its Roundup weed-killer. Whitbread, the UK hospitality chain, fell 2.6 percent after a downgrade at Societe Generale.

In economic news, German industrial production rose sharply in May but output advanced a disappointingly small 7.8 percent leaving a still hefty 19.0 percent shortfall versus its pre-Covid-19 level in February. Annual growth was minus 19.4 percent, up from minus 24.9 percent at the start of the quarter.

Asia Pacific

Major Asian markets posted mixed results Tuesday, with the regional data calendar providing only limited guidance to investor sentiment and pandemic developments still a major focus of attention. Hong Kong's Hang Seng index underperformed with a drop of 1.1 percent after surging on Monday, while Japan's Nikkei and Topix indices fell 0.4 percent and 0.3 percent respectively. The Shanghai Composite index closed up 0.4 percent.

Australia's All Ordinaries index was unchanged on the day, with investors not surprised by authorities' decision, in response to a recent increase in Covid-19 cases, to reimpose major restrictions on businesses and households in Victoria, the second most populous state, ahead of the closure of its border with New South Wales, the most populous state.

The Reserve Bank of Australia has left its main policy rate on hold as expected at a record low of 0.25 percent on at its regular monthly meeting Tuesday. Rates were cut to this level in April as part of efforts to counter the initial impact of the global Covid-19 pandemic on the Australian economy. Officials again noted that the Australian economy is going though "a very difficult period" and that the outlook remains highly uncertain but also judged that aggressive policy support in recent months has helped to steady economic conditions. Officials also reaffirmed their view that policy support will be needed "for some time" and that they will continue to do all they can to support economic recovery.

Household spending in Japan, in real terms, fell 0.1 percent on the month in May after dropping 6.2 percent in April, suggesting that spending remains at weak levels but has almost stabilised after the initial impact of Covid-19. Spending also remained weak on year-on-year terms, down 16.2 percent on the year after falling 11.1 percent previously. Data published last week showed retail sales rose 2.1 percent on the month in May after dropping 9.9 percent in April.

Looking ahead*

On Wednesday in Europe, the Swiss unemployment report is scheduled. In North America, weekly US EIA Petroleum Status and monthly US consumer credit figures are scheduled.

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