Daily market review

United States

Mega-cap momentum and technology stocks were hammered Thursday, in what many traders considered a long-delayed correction, to lead equities sharply lower after record highs this week. The Dow Jones industrial index fell 2.8 percent, the S&P 500 fell 3.5 percent, and the NASDAQ dropped 5.0 percent.

Big drops in Apple, off 8 percent, Facebook, down 3.8 percent, Microsoft, down 6.2 percent, Tesla, down 9 percent, Salesforce, down 4 percent, and Advanced Micro Devices, down 8.5 percent, led markets down. It was unclear what triggered the abrupt turnabout, though analysts have been pointing to extreme valuations in Nasdaq mega-caps that have been rallying for months.

Holding up better were old-economy sectors like banks, consumer staples, energy, airlines, and cruise lines, as cyclicals saw more interest, with help from a surprisingly positive US jobless claims report and more optimism about Covid-19 vaccines. Among banks, BankAmerica was off 0.7 percent and JP Morgan was off 0.3 percent after upgrades at Deutsche Bank.

In US economic news, initial unemployment claims came in below Econoday's consensus range at 881,000 in the August 29 week while continuing claims in the August 22 week fell 1.238 million to 13.254 million. These are both the lowest levels of the crisis and best showing since early August when initial claims first edged below 1 million.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 42 cents to US$43.96, while spot gold fell US$12.73 to US$1,930.73. The US dollar fell against most major currencies. The US Treasury 30-year bond yield was down 2 basis points at 1.36 percent while the 10-year note yield declined 2 basis points to 0.63 percent.


Weakness in US equities hit European equities Thursday. The Europe-wide STOXX 600 and the German DAX both fell 1.4 percent, the French CAC fell 0.4 percent, and the UK FTSE-100 was down 1.5 percent.

Negative news from Europe on coronavirus cases added to the negative market sentiment. Markets did not appear to react to the French government's unveiling of its €100 billion fiscal stimulus program.

Another negative: July Eurozone retail sales figures came in much weaker than expected. Following a 5.3 percent monthly spurt in June, sales fell 1.3 percent and reduced annual growth from 1.3 percent to 0.4 percent.

Among sectors, worst off were technology and basic resources while travel/leisure, food/beverage, and auto/parts held up best. Among companies in the news, Publicis Groupe, the French PR/ad agency, rose 3.2 percent on an analyst upgrade. Bank of Ireland rose 4 percent as Irish banks said they would extend loan payment breaks for companies hit by the downturn. On the downside, Siemens Healthineers fell 6 percent after completing its share placement. Dormakaba, the Swiss security company, fell 4 percent after disappointing quarterly results and announcing a restructuring. Iliad, the French telecom, fell 2 percent on an earnings miss.

Asia Pacific

Major Asian markets ended mostly better Thursday, with South Korea, Japan, Taiwan, and Australia leading the way, with support from Wednesday's gains on Wall Street. The Korean KOSPI rose 1.3 percent, the Japanese Nikkei 225 was up 0.9 percent, the Australian All Ordinaries rose 0.8 percent. The Shanghai Composite was off 0.6 percent, as markets continued to focus on elevated US-China tensions, including the US crackdown on TikTok and WeChat, and new US restrictions on Chinese diplomats.

In economic data, Markit China PMI business activity index for the services sector eased from 54.1 in July to 54.0 in August, indicating that activity in the sector expanded for the fourth consecutive month and at a pace that is still relatively strong. With the manufacturing PMI survey, published earlier in the week, showing an increase in its headline index from 52.8 to 53.1, together these resulted in the composite index advancing from 54.5 in July to 55.1 in August. In Japanese macro news, BOJ board member Goshi Kataoka suggested more aggressive JGB purchases would be needed to offset downward pressure on inflation stemming from the global pandemic.

Looking ahead*

On Friday in Asia/Pacific, the Australian retail sales report is due. In Europe, German manufacturers orders and UK PMI construction reports are scheduled for release. In North America, Canadian labour force survey, Canadian Ivey PMI, and US employment situation reports are on tap.

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