Daily market review

United States

Optimism about a Covid-19 vaccine bolstered the market's reopening hopes Wednesday, with value and cyclical stocks leading the advance. The Dow Jones industrial index and the S&P 500 both rose 0.9 percent, and the NASDAQ was up 0.6 percent.

Beaten-down cyclicals traded higher on reports of positive clinical results on the UK-Oxford vaccine effort, plus similar upbeat news from vaccine trials under way at US biopharma Moderna, which rose 6.9 percent. Tech stocks lagged due to a perception they are overextended after enormous gains over many years not to mention the latest worries over rising US-China tensions.

Among sectors, energy and industrials led gainers, with airlines rallying on hopes they can resume regular business soon. Dow heavyweight Boeing was a winner, up 4.4 percent. Banks led financials higher, with Goldman Sachs, up 1.4 percent, reporting strong trading results. Energy stocks advanced as oil prices perked up on the recovery hopes and an unexpectedly large decline in US oil inventories. Technology stocks lagged, though they still managed gains, with chipmakers in focus after an earnings miss at ASML, the Dutch chipmaker, which fell 5.3 percent.

In US economic data, industrial production jumped 5.4 percent in June to beat Econoday's consensus for 4.4 percent. Manufacturing rose an even sharper 7.2 percent as motor vehicle output doubled; among other gainers, machinery rose 6.4 percent and aircraft 4.9 percent. In a separate report on July conditions, the Empire State index jumped from minus 0.2 percent to 17.2 to well exceed expectations.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 86 cents to US$43.69, while spot gold rose US$2.17 to US$1,811.94. The US dollar fell against most major currencies. The US Treasury 30-year bond yield rose 2 basis points to 1.34 percent while the 10-year note yield rose 1 basis point to 0.64 percent.


Hopes for progress on a Covid-19 vaccine lifted equities Wednesday. The Europe-wide STOXX 600 and the German DAX both rose 1.8 percent, the French CAC rose 2.0 percent, and the UK FTSE-100 rose 1.8 percent.

Markets reacted in particular to a report that the vaccine, a UK-sponsored effort with AstraZeneca, was producing very positive trial results to be published Thursday in Lancet. AstraZeneca rose 5 percent.

Among sectors, the best performers included travel, industrial goods, health care and media. Lagging were real estate, telecom and insurance. In the long-suffering travel sector, cruise line company Carnival jumped by 11 percent on the hopeful vaccine news. Airlines outperformed, including Lufthansa, up 7.3 percent, and Air France, up 6.0 percent.

In economic data, UK consumer prices were just slightly firmer than expected in June. A 0.1 percent monthly increase boosted the annual inflation rate from 0.5 percent in May to 0.6 percent, its first increase since January.

Asia Pacific

Major Asian markets posted mixed results Wednesday, with a range of factors helping to drive trading directions. Gains on Wall Street Tuesday and reports that a trial of a potential Covid-19 vaccine had delivered positive results provided some support to investor sentiment. Ongoing US-China tensions, however, remain a concern after President Trump approved sanctions in response to the recent imposition of tighter security laws in Hong Kong.

The Shanghai Composite index underperformed Wednesday, closing down 1.6 percent, while Hong Kong's Hang Seng index closed flat on the day. Australia's All Ordinaries index, however, posted a strong increase, up 1.9 percent, while Japan's Nikkei and Topix indices both advanced 1.6 percent after the Bank of Japan signaled that monetary policy will remain highly accommodative.

The Bank of Japan left settings on hold as expected with the policy rate at minus 0.1 percent and the target for the 10-year yield at around zero percent. Officials also kept in place significant asset purchases to help offset the economic impact of the pandemic. Forward guidance was also left intact, with officials reaffirming their commitment to keep policy rates low and not hesitate to lower them further if considered necessary.

The BoJ also updated its assessment of the economic outlook Wednesday, continuing to forecast . a sharp contraction in activity in the near-term as a result of the Covid-19 pandemic, followed by a recovery in subsequent years. Speaking after the decision, BoJ Governor Haruhiko Kuroda expressed confidence that policy measures put in place in recent months were having a positive effect and that the domestic economy will recover at a modest pace but steadily.

Looking ahead*

On Thursday in Asia the New Zealand CPI and Australian labour force survey will be posted while out of China the list includes industrial production, retail sales, and GDP. In Europe, the ECB monetary policy announcement is due, plus reports on the UK labour market, French CPI, Italian merchandise trade, and Eurozone merchandise trade. In North America, the following are scheduled: US jobless claims, Philadelphia Fed Business Outlook Survey, US retail sales, US business inventories, and the US housing market index.

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