Mega-caps, tech depress US; Europe mostly better; Asia mixed

United States

Weakness in mega-caps, especially technology, depressed US equities Wednesday, with cyclicals holding up better. The Dow Jones industrial index rose 0.1 percent, the S&P 500 declined 0.5 percent, and the NASDAQ fell 1.3 percent.

Value stocks fared better as the Federal Reserve restated its commitment to keep rates lower for longer, with financials, energy, and industrials leading the way. Energy stocks got a boost from an uptick in oil prices, and financials appeared to bounce after a selloff Tuesday.

Mega-caps, especially tech shares, were the worst performers as they retreated after a rebound in the last few days. Apple, the momentum leader, fell 3.0 percent, Microsoft was off 1.8 percent, and Tesla slipped 1.8 percent.

Among companies in focus, DraftKings, the online sports gaming company, rose 5.9 percent after the Big Ten conference said it would hold its football season despite Covid-19 concerns. Southwest Airlines was up 3.7 percent on positive statements on its business outlook. On the downside, tech stocks suffered, with Adobe, the software leader, off 4.4 percent despite its positive earnings surprise, and chipmaker Nvidia, another momentum favorite, off 3.7 percent.

In US economic data, retail sales in August showed only a 0.6 percent monthly gain with both ex-vehicles sales as well as sales ex-vehicles & gas rising 0.7 percent. These were all several tenths below Econoday's consensus. But more telling was the outright contraction in the control group, down 0.2 percent to just make the low end of the consensus range.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.68 to US$42.24, while spot gold rose US$4.84 to US$1,958.09. The US dollar was better against most major currencies. The US Treasury 30-year bond yield rose 2 basis points to 1.46 percent while the 10-year note yield rose 1 basis point to 0.69 percent.

Europe

Equities ended mixed to better Wednesday with retail stocks leading in cautious trading as the market awaited the Federal Reserve's policy statement. The Europe-wide STOXX 600 rose 0.6 percent, the German DAX percent gained 0.3 percent, the French CAC firmed 0.1 percent, and the UK FTSE-100 declined 0.4 percent.

UK markets lagged on sterling strength as many suspect the UK will back down in its Brexit dispute with the EU. Among retailers, Spain's Inditex rose 8.1 percent on an upside surprise in its trading report. German stocks outperformed on some upbeat corporate results.

Among sectors, outperforming were real estate, basic resources, retail, media, and industrials, while lagging were autos, utilities, telecom, and health care.

Among companies in focus, Merck, the German pharma, rose 0.8 percent after an upbeat forecast. Brenntag, the German chemicals firm, rose 4.2 percent on positive guidance.

Asia Pacific

Major Asian markets again posted mixed but generally moderate moves Wednesday, with the regional data calendar light and investors waiting for the outcome of policy meetings at the Federal Reserve and, later in the week, the Bank of Japan as well.

Australia's All Ordinaries index was the regional outperformer, closing up 1.1 percent on the day, while Japan's Nikkei and Topix indices posted small gains of 0.1 percent and 0.2 percent respectively. As expected, Japan's parliament ratified Yoshihide Suga as prime minister. Hong Kong's Hang Seng index closed flat on the day, while the Shanghai Composite index fell 0.4 percent.

Japanese trade data indicate that the Covid-19 pandemic continued to have a substantial impact on global and regional trade flows in August. Exports fell 14.8 percent on the year after dropping 19.2 percent in July as solid demand from China was offset by weakness elsewhere. Imports fell 20.8 percent on the year after dropping 22.3 percent previously. This resulted in the merchandise trade surplus rising from ¥10.9 billion in July to ¥248.3 billion in August.

Looking ahead*

On Thursday in Asia/Pacific, New Zealand GDP, Singapore merchandise trade, and Australian labour force figures are due. In Europe, Swiss merchandise trade, Italian merchandise trade, Eurozone HICP, and Bank of England policy decision and minutes are scheduled. In North America, US housing starts, jobless claims, and Philadelphia Fed manufacturing reports are on tap.

Global Stock Market Recap

Global Bond Market Recap

Global Currency Recap

Commodities and currencies

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