Daily market review

United States

Cyclical stocks sagged Monday on the soft economic outlook while mega-caps held up better. The Dow Jones industrial index slipped 0.8 percent, the S&P 500 eased 0.2 percent, but the NASDAQ rose 0.7 percent. Even as stocks faltered Monday, the S&P was on track for a strong 7 percent advance for August.

Dovish comments by Fed Vice Chair Richard Clarida appeared to confirm expectations that a recovery was likely to be delayed and interest rates would stay low for longer. Investors also noted lack of progress toward a US fiscal stimulus package while the pandemic persists.

Among sectors, technology outperformed, with Apple up 3.4 percent after its stock split, and Tesla surging another 13 percent. Momentum stocks remained in favor relative to the rest of the market. Other tech winners included Nvidia, up 1.7 percent, and Advanced Micro Devices, up 6.2 percent. Consumer discretionary beat the tape as Amazon rose 1.5 percent. Biotech boosted health care.

On the downside, consumer staples were hurt by weakness in grocery stores and in Walmart, which fell 1 percent on a snafu in its bid for TikTok. Banks and financials sold off, with JP Morgan down 2.6 percent and BankAmerica down 2.5 percent, Industrials lagged as airlines suffered. Energy was the day's worst performer as refiners dropped, with Valero off 4.2 percent and Phillips 66 down 5.4 percent.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 50 cents to US$45.55, while spot gold rose US$3.88 to US$1,968.89. The US dollar was little changed against most major currencies. The US Treasury 30-year bond yield was down 2 basis points at 1.48 percent while the 10-year note yield declined 2 basis points to 0.71 percent.


European equities tracked US stocks slightly lower Monday in quiet trading after Wall Street opened weaker, with soft inflation figures adding to the decline. The Europe-wide STOXX 600 fell 0.6 percent, the German DAX declined 0.7 percent, the French CAC fell 1.1 percent, and the UK FTSE-100 was off 0.6 percent.

German and Italian CPI data raised worries that the Eurozone faces deflation. Among sectors, banks and insurance lagged the most amid declining interest rates and also speculation about likely ECB action to spur the Euro area economy. On the other hand, comments from ECB Executive Board member Isabel Schnabel suggested the central bank is content with the level of asset purchases in spite of the economic fallout from resurgent virus cases in the Eurozone.

Among sectors, only utilities, basic resources, and health care managed modest gains, while construction materials, telecom, and technology also lagged the market.

In the day's big corporate news, Nestle, off 0.3 percent, said it would acquire the rest of the shares of Aimmune Therapeutics, (up 171 percent) a US biotech known for its peanut allergy treatment. The Swiss food conglomerate already owns 25 percent of the biotech.

In economic data, German CPI provisionally dipped 0.1 percent on the month, lifting the annual inflation rate from July's final minus 0.1 percent to zero percent. This was the second month in a row that headline inflation has not been in the plus column, with the yearly rate continuing to be undermined by a 3 percentage point reduction in VAT that came into effect at the start of July.

Meanwhile, Italian CPI rose 0.3 percent on the month in August. This was in line with market expectations and put the annual inflation rate at minus 0.5 percent, down from a final minus 0.4 percent in July and the fourth month in a row to see a sub-zero print.

Asia Pacific

Major Asian markets posted mixed results Monday, with regional investors reacting to economic data and sector-specific news. Japan's Nikkei and Topix indices outperformed with gains of 1.1 percent and 0.8 percent respectively after the release of retail sales and industrial production data and news that Berkshire Hathaway has acquired significant positions in five major Japanese conglomerates. Hong Kong's Hang Seng index and the Shanghai Composite index, however, both fell, closing down 0.2 percent and 1.0 percent respectively, with shares of major banks dropping sharply after the five largest Chinese banks warned their profits are likely to fall significantly in response to a spike in bad loans this year. Australia's All Ordinaries index also closed down, slipping 0.2 percent on the day.

Official Chinese PMI survey data suggest conditions improved at a steady rate in the manufacturing sector and strengthened further in the services sector. The CFLP manufacturing PMI eased slightly from 51.1 in July to 51.0 in August, just below the consensus forecast of 51.2 and indicating further expansion in activity. The non-manufacturing PMI index rose from 54.2 to 55.2, indicating that activity in the sector continued to expand at a strong pace.

Retail sales in Japan fell 2.8 percent on the year in July after dropping 1.3 percent in June. On the month, sales fell 3.3 percent after June's 13.1 percent advance. New Covid cases in Japan picked up appreciably in July, resulting in a re-tightening of restrictions in parts of the country. Industrial production in Japan rose 8.0 percent in July versus a 1.9 percent gain in June. In year-on-year terms, production was still deeply negative, falling 16.1 percent. Turning to India, GDP fell 23.9 percent on the year in the second quarter; India's government imposed a national lockdown in late March to curb the spread of the virus.

Looking ahead*

On Tuesday in Asia/Pacific, the Reserve Bank of Australia policy announcement, Indian PMI manufacturing, Japanese unemployment rate, Japanese PMI manufacturing, and Chinese Caixin PMI manufacturing reports are due. In Europe, Swiss SVME PMI, French PMI manufacturing, German PMI manufacturing, German unemployment rate, Eurozone PMI manufacturing, UK M4 money supply, UK PMI manufacturing, Eurozone HICP flash, and Eurozone unemployment rate reports are scheduled for release. In North America, US PMI manufacturing final, US ISM manufacturing index, and US construction spending reports are on tap.

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