Daily market review

United States

Equities declined Thursday as risk-off pressures hit tech stocks and mega-caps amid worries they remain overvalued. Ending up from lows, the Dow Jones industrial index declined 0.5 percent, the S&P 500 fell 0.8 percent, and the NASDAQ was down 1.3 percent.

Investors appeared underwhelmed by the Federal Reserve's policy announcement, including its lower-for-longer rate pledge. Statements from the Bank of Japan and Bank of England underlined market expectations for slow growth and the prospect of negative interest rates in the UK. Meanwhile, concern over the likely timing of a Covid-19 vaccine added to the risk-off tone after a top US health official said a vaccine would not be in wide use until the middle of 2021; administration officials have said it would happen much sooner.

Among sectors, the FAANGS led decliners to hurt communications services, consumer discretionary, and techs. Holding up better were industrials, materials, and steel.

In US economic data, housing starts fell 5.1 percent in the month to a 1.416 million annual rate which was on the low end of Econoday's consensus range and still sizably below the pre-virus month of February, at 1.567 million. Separately, initial claims fell 33,000 in the September 12 week to an 860,000 level that was only slightly above Econoday's consensus for 850,000. And finally, the Philadelphia Fed's September's manufacturing index came in at 15.0, in line with the consensus to indicate significant monthly acceleration.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.06 to US$43.30, while spot gold fell US$9.80 to US$1,948.29. The US dollar declined against most major currencies. The US Treasury 30-year bond yield fell 3 basis points to 1.43 percent while the 10-year note yield was unchanged at 0.69 percent.


Gloomy central bank comments on the economic outlook and lack of new monetary easing weakened equities Thursday. The Europe-wide STOXX 600 declined 0.5 percent, the German DAX percent eased 0.4 percent, the French CAC slipped 0.7 percent, and the UK FTSE-100 was off 0.5 percent.

Bank stocks suffered from expectations for low interest rates for longer, with UK rates possibly going negative. Technology stocks reflected weakness in US markets where Apple and other mega-cap techs remained under risk-off selling pressure. Deutsche Bank declined 0.8 percent, BNP Paribas eased 0.5 percent, and Lloyds Bank fell 1.2 percent.

The Bank of England left rates unchanged, as expected, but markets were left with the impression that negative interest rates are a distinct possibility, especially if EU-UK talks on Brexit collapse. The Fed's inaction on its asset purchases program Wednesday disappointed some market participants who looked for more aggressive policy measures given the uncertain outlook and persistence of the global pandemic. Meanwhile, a top World Health Organization official warned that Europe is facing a "very serious situation" as cases rise, saying restrictive measures must remain in place.

Among sectors, utilities, basic resources, technology, insurance and media joined banks in leading declines while holding up best were health care, travel & leisure, retail, and industrials. Among tech stocks, UK software developer Playtech was a notable decliner, down 6.4 percent after weak guidance. Telecom Italia fell 2.7 percent on a report that regulators will oppose its broadband expansion.

Asia Pacific

Major Asian markets closed lower Thursday, following the lead set by Wall Street Wednesday after the Fed restated its commitment to keep rates low for as long as necessary, with the Bank of Japan also sending the message at its meeting Thursday that policy settings would need to remain accommodative for a considerable period.

Hong Kong's Hang Seng index was the weakest regional performer, closing down 1.6 percent with Australia's All Ordinaries index dropping 1.3 percent despite stronger-than-expected labour market data. Japan's Nikkei and Topix indices fell 0.7 percent and 0.4 percent respectively, while the Shanghai Composite index fell 0.4 percent.

The Bank of Japan left policy settings on hold, at minus 0.1 percent for the policy rate together with significant asset purchases. Officials said Japan's economy "has started to pick up" from the initial impact of the pandemic, but reiterated that they will not hesitate to ease policy further. At the press conference, BoJ Governor Haruhiko Kuroda stressed that the BoJ will work closely with incoming Prime Minister Yoshihide Suga, suggesting that this change in leadership will likely have little impact on the outlook for monetary policy.

Conditions in Australia's labour market in August were considerably better than expected in August as employment rose by 111,000 and the unemployment rate fell 7 tenths to 6.8 percent. In New Zealand, second-quarter GDP fell 12.2 percent on the quarter following a 1.6 percent decline in the first quarter which puts the country into technical recession.

Looking ahead*

On Friday in Asia/Pacific, Japanese CPI figures are due. In Europe, German PPI and UK retail sales are scheduled. In North America, Canadian retail sales, US current account, US consumer sentiment, and US leading indicators reports are on tap.

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