United States
The Federal Reserve's supportive stance boosted equities Friday, with value stocks benefiting from the reflation trade, along with positive economic data and company news. The Dow Jones industrial index rose 0.6 percent, the S&P 500 gained 0.7 percent, and the NASDAQ was up 0.6 percent.
Optimism about coronavirus treatments and vaccines, along with better news on US virus case numbers, provided support. All sectors advanced, with energy, materials, and technology leading.
Bank stocks benefited as interest rates rose Thursday in response to the Fed's announced shift toward average inflation targeting and expectations that it will remain highly accommodative even if growth picks up. Rates were flat to lower Friday.
ExxonMobil was among the day's leaders, up 2.4 percent, along with driller Apache, up 3.1 percent. Consumer discretionary shares were notable outperformers, with Ulta, the beauty store chain, up 5.8 percent on a big earnings beat. Other consumer discretionary sector winners included Wynn Resorts, up 5.8 percent, and Royal Caribbean, the cruise line company, up 5.3 percent.
Among companies in the news, Coca-Cola rose 3.3 percent on news of cost cuts. Hewlett Packard gained 6.2 percent on an upside revenues surprise spurred by surging home computer sales. Dell rose 6.1 percent after a positive earnings surprise. Workday, the human resources and software company, rose 13 percent after beating expectations.
On the downside, DraftKings fell 7 percent after a downgrade at Morgan Stanley. Big Lots, the retailer, fell 10 percent despite topping sales expectations, as it said low inventories constrained its business.
In US economic news, consumer vital signs, which were scrambled by virus effects beginning in March, continued to stabilize in July, up 0.4 percent for personal income and up 1.9 percent for personal consumption, above market expectations.
These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 4 cents to US$45.05, while spot gold rose US$34.49 to US$1965.01. The US dollar fell against most major currencies. The US Treasury 30-year bond yield was flat at 1.50 percent while the 10-year note yield declined 2 basis points to 0.74 percent.
Europe
A mixed showing for equities left major stock indexes down slightly Friday with weakness in food & beverage, health care and technology shares offset in part by gains in banks, basic resources, insurance, and travel & leisure. The Europe-wide STOXX 600 and the German DAX both fell 0.5 percent, the French CAC declined 0.3 percent, and the UK FTSE-100 was off 0.6 percent.
Markets continued to react to the Federal Reserve's signal that it would allow higher inflation in a bid to boost growth, with banks and insurance stocks reacting to rising interest rates. Coronavirus news tended to provide support as the market focused on progress on testing and treatments, and lower new case rates in the US and Asia, despite worrisome increases in case numbers in Europe.
News of Japanese Prime Minister Shinzo Abe's resignation was a negative for equities though observers looked for his successor to maintain the government's aggressive reflationary policies. Another negative were reports that EU and UK negotiators are not making progress on a Brexit deal as another deadline approaches.
Among the day's winners, Banco Santander rose 3.6 percent and Intesa Sanpaolo rose 1.2 percent. On the downside, Norwegian Air fell 8.5 percent on bleak guidance. Bayer, the German chemicals and pharma, fell 3 percent on worries over its legal settlement of claims for its Roundup pesticide.
Asia Pacific
Major Asian markets were again mixed Friday, with performance also diverging over the week. A bare regional data calendar Friday kept investors focussed on Fed Chair Powell's comments Thursday and speculation, confirmed after most regional markets had closed, that Japanese Prime Minister Abe was set to resign. Japan's Nikkei and Topix indices fell 1.4 percent and 0.7 percent on the day respectively, but were little changed on the week, closing down 0.2 percent and up 0.1 percent respectively. Australia's All Ordinaries index also fell 0.8 percent on the day and 0.2 percent on the week. The Shanghai Composite index outperformed on the day with a solid increase of 1.6 percent, taking the week's gains to 0.7 percent, while Hong Kong's Hang Seng index closed up 0.6 percent on day and 1.2 percent on the week.
Prime Minister Abe announced his resignation Friday, citing poor health. Abe, leader of the Liberal Democratic Party, has been prime minister since 2012 and his term was due to expire in 2021. A new leader is expected to be chosen by the LDP and approved by parliament in the next few weeks. Under Abe's leadership, the Japanese government has strongly supported the Bank of Japan's policy of quantitative easing in recent years and has in recent months approved substantial fiscal stimulus in an effort to offset the economic impact of the Covid-19 pandemic.
