Daily market review

United States

Mega-cap tech stocks led equities higher Monday as Microsoft and Apple tacked on more gains after last week's advance. The Dow Jones industrial index rose 0.9 percent, the S&P 500 gained 0.7 percent, and the NASDAQ gained 1.5 percent.

Stocks gained on better US economic data, including a better-than-expected ISM manufacturing index where a 54.2 headline for July topped expectations by more than a point. New orders accelerated strongly, up more than 5 points at 61.5. Nevertheless, cyclical stocks had to contend with skepticism over near-term progress toward compromise on another US coronavirus relief bill.

Microsoft advanced 5.6 percent on news it may buy TikTok, the social media app, and after President Trump apparently retracted his threat to ban the service. Apple rose 2.5 percent as its momentum continued after Friday's 10.5 percent rally. Health care rose with help from upbeat earnings from Merck, which rose 2.9 percent, and from Varian, the radiation oncology company, which soared 22 percent on news it will be acquired by Siemens Healthineers, a German medical technology company. ADT jumped 57 percent on news Google will take a stake in the home security company.

Lagging were communications services, including Disney, down 0.7 percent, and Google, down 0.6 percent. Consumer staples were hurt by weakness in Clorox, which declined 1.9 percent despite blowout sales of cleaning supplies. Utilities and real estate were the worst performers.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 56 cents to US$43.96, while spot gold rose US$1.73 to US$1,976.57. The US dollar rose against most major currencies. The US Treasury 30-year bond yield rose 3 basis points at 1.23 percent while the 10-year note yield rose 1 basis point to 0.55 percent.


Upbeat company earnings and economic data gave equities a boost Monday. The Europe-wide STOXX 600 rose 2.1 percent, the German DAX gained 2.7 percent, the French CAC gained 1.9 percent, and the UK FTSE-100 advanced 2.3 percent.

Risk assets reacted well to news that Eurozone manufacturing finally returned to growth in July. The 51.1 flash sector purchasing managers index was revised up to 51.8, signaling a modest advance in overall business activity after almost a year-and-a-half of contraction. Separately, UK manufacturing also picked up momentum in July. Although the 53.6 flash sector PMI was trimmed to 53.3, this was a 32-month high and 3.2 points above its 50.1 reading in June.

In other macro news, Reuters reported the EU may soften its position to reach a Brexit deal with the UK. And the European Commission approved a new round of Italian state subsidies to Italian businesses.

Auto stocks led the way higher, along with media, construction and materials and basic resources, while lagging the market were real estate and food & beverage.

Notable winners included Nordex, the German energy equipment company, up 22 percent on news it will sell its wind and photovoltaic businesses. Elekta, the Swedish radiation therapy business, rose 15 percent on analyst upgrades. Dufry, the Swiss airport retailer, rose 2.5 percent after it left its guidance in place despite Covid-19 disruptions to travel. On the downside, HSBC fell 2.9 percent on an earnings miss and warning of "challenging US-China" tensions.

Asia Pacific

Major Asian markets diverged at the start of the week, with a range of factors helping to drive mixed results across the region. PMI survey data showed another month of significant contraction in the manufacturing sectors of Japan and India but further improvement in conditions in the Chinese manufacturing sector. This appeared to boost investor confidence that supply chains across the region may benefit from stronger Chinese demand in coming months. In addition to the Shanghai Composite index posting a strong gain, up 1.8 percent, Japan's Nikkei and Topix indices also performed well, rebounding from sharp declines on Friday with increases of 2.2 percent and 1.8 percent respectively

Other markets, however, closed lower. Australia's All Ordinaries index fell 0.1 percent, on further restrictions by local authorities following the recent surge in Covid-19 in parts of the country. The state government of Victoria, Australia's second most populous state and location of almost 25 percent of national economic activity, has introduced a severe six-week lockdown, including curfews, tight controls on travel, and the closure of all businesses not deemed to be essential. Hong Kong's Hang Seng index also sold off Monday, closing down 0.6 percent, with shares in HSBC Bank dropping sharply in response to a large fall in reported profits for the first half of 2020.

The Markit manufacturing PMI for China rose from 51.2 in June to 52.8 in July, only moderately above breakeven 50 but still the highest reading since 2011. Respondents reported stronger increases in output and new orders, a smaller drop in new export orders, and only a slight cut in payrolls. The equivalent surveys for Japan and India, however, both showed further weakness in manufacturing conditions. The headline index for Japan rose from 40.1 in June to 45.2 in July, still indicating contraction, while the headline index for India fell from 47.2 to 46.0.

Japanese official, in response to high levels of uncertainty associated with the economic impact of Covid-19, published a second revision to second-quarter GDP. The updated revision was broadly unchanged from the previous estimate, with GDP still estimated to have contracted by 0.6 percent on the quarter and by 2.2 percent on the quarter at an annualized rate, and to have fallen 1.7 percent on the year.

Looking ahead*

On Tuesday in Asia/Pacific, the Reserve Bank of Australia will announce its policy decision and Australian merchandise trade and retail sales figures will be released. In Europe, Swiss SECO consumer confidence and Eurozone PPI reports are on tap. In North America, the US factory orders report is due for release.

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