Daily market review

United States

Cyclical and value shares joined mega-cap stocks in broad-based gains Wednesday on recovery hopes and optimism over a near-term deal on US coronavirus relief. Risk sentiment also improved on news suggesting progress on the coronavirus vaccine front. The Dow Jones industrial index gained 1.4 percent, the S&P 500 rose 0.6 percent, and the NASDAQ gained 0.5 percent.

Republican and Democratic negotiators were reportedly aiming to clinch a deal this week to extend supplemental unemployment benefits and limit evictions. The two sides remain far apart on aid to state and local governments. Meanwhile, a report that Novovax, the vaccine maker (up 10 percent), saw more good results from its vaccine clinical trial added to better market sentiment.

Markets chose to look past a shocking US employment reading from ADP, which said private payrolls rose only 167,000 in July, in contrast to expectations for a gain of 1.9 million. Investors focused instead on an upbeat US ISM services reading at 58.1, suggesting surging business activity in July.

Among sectors, materials led winners, with help from the rally in precious metals. Energy stocks outperformed as crude oil prices perked up. Devon Energy, the driller, was a featured winner, up 9 percent on an earnings beat and positive rating from Credit Suisse. Financials and industrials outperformed, along with consumer discretionary shares, led by Amazon, up 2.1 percent. Lagging were health care and chip stocks, with Microchip Technology off 8 percent on weak guidance. Consumer staples underperformed while utilities and real estate lagged the most.

Among companies reporting, Dow component Disney rose 8.8 percent on good news for its streaming services and on earnings that were not as bad as expected. Johnson & Johnson, another Dow stock, rose 0.8 percent on a US government order for its prospective Covid-19 vaccine. Heavyweights Boeing rose 5.6 percent and JP Morgan gained 1.7 percent.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 88 cents to US$45.22, while spot gold rose US$27.16 to US$2,043.83. The US dollar declined against major currencies. The US Treasury 30-year bond yield rose 3 basis points to 1.22 percent while the 10-year note yield rose 4 basis points to 0.54 percent.


Equities improved Wednesday as PMI data and rising commodities prices gave cyclical stocks a boost. The Europe-wide STOXX 600 and the German DAX both rose 0.5 percent, the French CAC rose 0.9 percent, and the UK FTSE-100 gained 1.1 percent, with big oil and mining shares helping UK stocks outperform.

Markets were more hopeful about a deal on the next round of US fiscal relief after several reports said negotiators were targeting agreement by the end of the week. Separately, Bloomberg reported the Bank of England may move to an easier stance at its policy meeting Thursday.

In economic news, Eurozone business activity grew at the fastest rate in more than two years in July. At 54.9, the final composite output index was just 0.1 point higher than its flash reading but 6.4 points stronger than June. Separately, UK final service sector PMI weighed in at 56.5, down 0.1 point from its 56.6 flash print but 9.4 points above June's final 47.1 and showing the best month for business activity in five years. Partly as a result, the 57.1 flash composite output index was also trimmed by 0.1 point and at a final 57.0 now stands 9.3 points stronger than in June.

Miners advanced, along with energy stocks, as oil and commodities prices rose. Among stock sectors, travel & leisure outperformed, as cyclicals generally benefited from the better economic picture reflected in the PMI data. Lagging were food & beverage, telecom, and health care.

Among companies reporting, Commerzbank rose 3.9 percent after news of a smaller-than-expected loss for the second quarter. Deutsche Post rose 1.7 percent as the package delivery giant topped earnings expectations and confirmed its 2020 guidance. Ahold Delhaize, the Dutch supermarket chain, gained 5.3 percent as online sales propelled an upside surprise in earnings and revenues.

On the downside, BMW fell 3.5 percent despite earnings and revenues beats as its guidance on worldwide auto deliveries remained cautious. Fresenius, the German dialysis company, lost 4.2 percent after guiding lower for the second half and an analyst downgrade. Continental, the German auto parts leader, fell 2.3 percent on bleak guidance.

Asia Pacific

Moves in major Asian markets were mixed but mostly moderate Wednesday, with a busy regional data calendar generally confirming the ongoing severe economic impact of the Covid-19 pandemic on the region. As in other markets, sentiment was also impacted by concerns about the prospects for further US fiscal stimulus.

The Shanghai Composite index posted a small 0.2 percent increase, while Japan's Nikkei and Topix indices were also little changed, down 0.3 percent and flat on the day respectively. Hong Kong's Hang Seng index advanced 0.5 percent on the day while Australia's All Ordinaries index underperformed, dropping 0.6 percent after another big increase in Covid-19 cases and a further tightening of inter-state border restrictions.

The Markit China PMI survey's business activity index for the services sector fell from a 10-year high of 58.4 in June to 54.1 in July, indicating that activity in the sector expanded for the third consecutive month and at a pace that is still relatively strong.

Other PMI surveys published Wednesday, however, showed that conditions remained very weak elsewhere in the region. The business activity index for the services sector rose from 45.0 in June to 45.4 in July for Japan and from 33.7 to 34.2 for India. Although the indexes rose in both cases, they remained below the 50 level, indicating that the services sector contracted at a significant pace again in both countries, as did the equivalent surveys for the manufacturing sector earlier in the week. Meanwhile, the economy-wide PMI survey for Singapore and Hong Kong also showed a further contraction in activity, with the headline index falling from 49.6 to 44.5 for Hong Kong and increasing from 43.2 to 45.6 in Singapore.

New Zealand labor market statistics published Wednesday showed weaker conditions for the second quarter with employment down 0.4 percent on the quarter. And although the unemployment rate fell from 4.2 percent to 4.0 percent this was largely driven by a sharp drop in the participation rate from 70.5 percent to 69.7 percent.

Looking ahead*

On Thursday in Asia/Pacific, Chinese merchandise trade figures will be released and the Reserve Bank of India will make its policy announcement. In Europe, the Bank of England policy announcement and monetary policy report are due, plus German manufacturers' orders, Italian industrial production, and UK PMI construction reports. In North America, the weekly jobless claims report is scheduled.

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