Daily market review

United States

Mega-caps led US stock indexes slightly higher Tuesday with Amazon, Google, and Tesla showing good gains, but cyclical stocks lagged on recovery worries. The Dow Jones industrial index eased 0.2 percent, the S&P 500 rose 0.2 percent, and the NASDAQ gained 0.7 percent as technology and mega-caps outperformed.

US-China tensions, lack of progress on US fiscal stimulus, and ongoing global pandemic fears combined to depress cyclicals as they are pegged to the recovery while mega-caps evidently are not.

Upbeat earnings from retailers Home Depot, down 1.1 percent, and from Walmart, off 0.7 percent, and another huge beat for US housing starts helped the S&P 500 set record highs above 3,395 in the morning but the market fell back as investors sold on the positive news.

Mega-cap stocks still managed gains, including Amazon, up 4.1 percent after announcing a big expansion. Other winners included Google, up 2.7 percent, Netflix, up 2.0 percent, and Tesla, up 2.8 percent.

Among sectors, technology shares outperformed on gains in internet and software. Materials lagged on weakness in precious metals miners. Other laggards included health care, industrials, financials, and energy, with supermajors suffering the most as crude oil prices retreated.

Kohl's, the retailer, fell 14.7 percent after reporting soft back-to-school sales. Nordstrom's was off 9.8 percent, and Macy's was down 8.4 percent.

In US economic data, housing starts jumped to a 1.496 million annual rate in July, far above expectations and nearing February's pre-virus rate of 1.567 million. Permits, in line with record confidence among homebuilders, are already above February, at 1.495 million in July.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 23 cents to US$45.08, while spot gold rose US$19.98 to US$2,004.61. The US dollar dropped sharply against most major currencies. The US Treasury 30-year bond yield declined 4 basis points to 1.39 percent while the 10-year note yield fell 2 basis points to 0.67 percent.


Weakness in energy and banking sectors depressed equities Tuesday. The Europe-wide STOXX 600 declined 0.6 percent, the German DAX eased 0.3 percent, the French CAC fell 0.7 percent, and the UK FTSE-100 declined 0.8 percent.

Energy stocks reflected declining oil prices while banking suffered from lack of progress on US fiscal stimulus and fallout from US-China trade conflicts, including the Trump administration's latest sanctions against Huawei. Sectors holding up best included retail, insurance, and personal and household goods. Coronavirus news was mixed with Germany and Greece reporting rising cases and France seeing declines while Spain's numbers remain elevated.

Among companies in the news, BHP Billiton, the UK miner, fell 2.6 percent after an earnings miss and news it will divest coal assets. Marks & Spencer, the UK retailer, fell 4.9 percent after announcing layoffs and other cost cuts in the face of the pandemic hit to business. Pandora, the Danish jeweler, declined 7.5 percent on weak guidance.

On the plus side, Persimmon, the UK builder, rose 8.5 percent after reinstating its dividend and pointing to strong underlying fundamentals for its business. Ryanair rose 3.4 percent as the market liked its latest cost-cutting plan. Wood Group, the oil services engineering firm, rose 4.9 percent on an earnings beat.

Asia Pacific

Most major Asian markets closed higher Tuesday, though moves were small with the regional data calendar very light. President Trump's announcement Monday that further restrictions will be imposed on Chinese telecom Huawei Technologies appeared to have limited impact on sentiment.

Australia's All Ordinaries index outperformed with an increase of 0.8 percent as authorities reported a further decline in new Covid-19 cases, while the Shanghai Composite index and Hong Kong's Hang Seng index advanced 0.4 percent and 0.1 percent respectively. Japan's Nikkei and Topix indices were little changed while Korea's Kospi index was the main regional outlier, dropping 2.5 percent on reports of a new spike in domestic Covid-19 cases.

Minutes from the Reserve Bank of Australia's August 4 meeting underscored that officials consider the virus downturn in Australia's economy to be less severe that initially expected but that the recovery will likely be slower than previously expected due to the re-tightening of restrictions in response to the recent surge in cases. Officials again confirmed that policy rates will not be raised until progress is made towards full employment and they are confident that inflation will be sustainably within their 2.0 percent to 3.0 percent target range.

Looking ahead*

On Wednesday in Asia/Pacific, New Zealand PPI, Japanese merchandise trade, Japanese machine orders, and Chinese loan prime rate reports are due. In Europe, UK PPI, UK CPI, and Eurozone HICP reports are scheduled. In North America, the FOMC policy meeting minutes are on tap.

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