Daily market review

United States

The widening US-China dispute and lack of a deal on a coronavirus relief bill hurt mega-cap shares Friday while value shares edged up on better US jobs data. The Dow Jones industrial index rose 0.2 percent, the S&P 500 rose 0.1 percent, and the NASDAQ slipped 0.9 percent.

Markets came into the US hours in risk-off mode on US sanctions on Hong Kong leader Carrie Tam and President Trump's order banning US citizens from using TikTok or WeChat. News of a US payrolls beat, while unemployment declined more than expected, gave cyclicals and value shares a boost, but big tech still came off.

Among sectors, tech lagged with the FAANGs mostly down, and other underperformers included consumer discretionary and communications services. Outperformers included financials, industrials, and defensive utilities.

Among companies reporting, Zillow, the real estate broker, rose 12 percent after its results were not as bad as the market feared. T-Mobile rose 6.5 percent on positive earnings and subscriptions numbers. Biogen rose 10 percent on positive action from the FDA on its Alzheimers drug. On the downside, Tencent Holdings fell 7.3 percent after the US action against WeChat and TikTok. Uber, the ride-sharing company, fell 5.2 percent on an earnings miss.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 56 cents to US$44.64, while spot gold fell US$32.37 to US$2,030.79. The US dollar rose against most major currencies. The US Treasury 30-year bond yield rose 3 basis points to 1.23 percent while the 10-year note yield rose 2 basis points to 0.56 percent.


Equities recovered to end flat to barely higher Friday on supportive economic data and company news. The Europe-wide STOXX 600 edged up 0.3 percent, the German DAX rose 0.7 percent, and both the French CAC and the UK FTSE-100 firmed 0.1 percent.

Markets started the day weaker and later gains were limited by negative fallout from the latest escalation of the US-China dispute after President Trump ordered a ban on transactions with TikTok and WeChat, Chinese firms he said are hurting US interests. On the upside, US employment figures exceeded expectations, while German and French industrial production figures suggested the sector is recovering faster than expected.

Among sectors, technology, industrials and media outperformed while energy and basic resources lagged. Hikma Pharmaceuticals led winners, up 11 percent, after raising its dividend and saying it will manufacture the antiviral drug remdesivir for Gilead Laboratories. Rightmove, the UK online property broker, rose 9 percent on an earnings beat and after reporting recovering business activity. On the downside, BP, the UK oil supermajor, fell 2.7 percent as the market continued to react badly to its plan to unload oil assets and shift to renewable energy.

In economic news, the German goods producing sector closed out a miserable second quarter on a respectably strong note. Following a downwardly revised 7.4 percent monthly gain in May, production rose a larger than expected 8.9 percent. Manufacturing showed an 11.1 percent monthly increase, led by capital goods, which rose 18.3 percent. For France, industrial output expanded a larger than expected 12.7 percent on the month. Following a slightly stronger revised 19.9 percent jump in May, this lifted annual growth from minus 23.4 percent to minus 11.7 percent, a 4-month high.

Asia Pacific

Major Asian markets closed lower Friday and posted mixed moves on the week, with sentiment impacted by President Trump's executive order issued Thursday banning US firms from dealing with Chinese technology companies Tencent and ByteDance, owners of social media apps WeChat and TikTok respectively. Hong Kong's Hang Seng index reacted most negatively, with a sharp drop in Tencent shares contributing to a 1.7 percent fall on the day, taking losses on the week to 0.3 percent.

The Shanghai Composite index also closed down 1.0 percent on the day and 1.3 percent on the week despite the release of data showing better-than-expected growth in exports, while Australia's All Ordinaries index fell 0.5 percent on the day and 0.1 percent on the week. Japan's Nikkei and Topix indices closed down 0.4 percent and 0.2 percent respectively but outperformed on the week with gains of 2.9 percent and 3.4 percent respectively.

China's trade surplus in US dollar terms widened from $46.42 billion in June to $62.33 billion in July. Exports rose 7.2 percent on the year in July, picking up from an increase of 0.5 percent in June and well above the consensus forecast for a drop of 0.6 percent, with stronger growth in exports to major trading partners including the United States, the European Union, and Japan. Imports fell 1.4 percent on the year after increasing 2.7 percent previously and below the consensus forecast for an increase of 1.0 percent.

Household spending in Japan, in real terms, rose 13.0 percent on the month in June, rebounding strongly from a decline in previous months including a drop of 0.1 percent in May. Year-on-year growth also improved from a decline of 16.2 percent to a fall of 1.2 percent, stronger than the consensus forecast for a decline of 7.4 percent. Stronger growth was broad-based across major categories of spending. Restrictions put in place to curb the spread of the Covid-19 virus during the initial phase of the pandemic were eased to some extent over June, releasing significant pent-up consumer demand, but there remains downside risks for spending in coming months as cases pick up in some parts of the country, including Tokyo.

The Reserve Bank of Australia published its quarterly Statement on Monetary Policy after leaving policy rates on hold at a record low of 0.25 percent at its monthly meeting earlier in the week. Compared with their previous assessment in May, officials now expect Australia's economy will contract over 2020 in response to the Covid-19 pandemic to a lesser extent than previously anticipated but that the recovery from the pandemic's impact will be slower than previously forecast. They continue to expect headline inflation to remain below their target range of 2.0 percent to 3.0 percent over the next few years across a range of likely scenarios. Based on this assessment, the statement reaffirms that policy rates will not be increased until progress is being made towards full employment and officials are confident that inflation will be sustainably within the target range.

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