Daily market review

United States

Risk-on shifted abruptly to risk-off Tuesday after President Trump called off efforts to reach agreement on a fiscal stimulus package. The Dow Jones industrial index declined 1.3 percent, the S&P 500 slipped 1.4 percent, and the NASDAQ dropped 1.6 percent.

Before the Trump tweet hit in midafternoon, the major indexes were up more than one percent as investors anticipated a fiscal deal, and Federal Reserve officials including Fed Chair Jay Powell underlined the need for fiscal action to support the recovery.

Most sectors sold off on the Trump surprise, with FAANGS leading technology, communications services, and consumer discretionary sectors down. Value stocks were hit hard too, with airlines among the worst performers. Energy shares, after leading to the upside in the morning, led to the downside in the afternoon despite an uptick in oil prices.

Among companies in focus, Boeing dropped 6.8 percent to lead the Dow lower after cutting its guidance on aircraft demand. Apple, off 2.9 percent, Google, off 2.2 percent, and Amazon, down 3.1 percent, weighed on the averages. Mega-cap tech stocks were also hit by concerns that a Biden administration would mean new regulations.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 65 cents to US$42.09 while spot gold fell US$23.29 to US$1,888.92. The US dollar rose against most major currencies. The US Treasury 30-year bond yield fell 4 basis points to 1.54 percent while the 10-year note yield fell 4 basis points to 0.74 percent.


Hopes for US fiscal action and President Trump's improved health helped stocks erase initial losses to end slightly higher Tuesday. The Europe-wide STOXX 600 edged up 0.1 percent, the German DAX percent rose 0.6 percent, the French CAC gained 0.5 percent, and the UK FTSE-100 was up 0.1 percent.

News that German manufacturers' orders rose more than expected gave cyclicals a boost and helped German shares outperform. Cyclicals, including banks, travel & leisure, autos, and oil & gas beat the market, while technology and health care lagged. Tech shares were pressured by concerns that a Democratic sweep in upcoming elections would mean new regulations.

German new orders unexpectedly accelerated in August, up a very solid 4.5 percent following a stronger revised gain of 3.3 percent in July.

Among companies in focus, Bank of Ireland rose 8 percent on an upgrade from Barclays. Aareal, the German bank, rose 6.5 percent on an upgrade from Citibank. On the downside, Logitech, the Swiss electronics company, declined 5.1 percent on news of Apple's plans to launch new sound equipment.

Asia Pacific

Major Asian markets closed higher Tuesday after strong gains on Wall Street Monday. Japan's Nikkei and Topix indices both advanced 0.5 percent, as did Australia's All Ordinaries index, while Hong Kong's Hang Seng index closed up 0.8 percent. Chinese markets were again closed for a national holiday.

The Reserve Bank of Australia left its main policy rate on hold at a record low 0.25 percent in line with the consensus forecast. Officials noted that the Australian economy has contracted sharply in recent months and that recovery from the pandemic will be "bumpy and uneven." They also advised that they will continue to consider the use of "additional monetary easing" and, in the meantime, reaffirmed that policy rates will not be raised until progress is made towards full employment and they are confident that inflation will be sustainably within their 2.0 to 3.0 percent target range.

Australia's trade surplus narrowed from A$4.652 billion in July to A$2.643 billion in August, the smallest monthly trade surplus since mid-2018. Exports fell 4.2 percent on the month in August after dropping 3.4 percent in July, largely reflecting a sharp fall in gold exports, often a volatile category. Imports rose 2.0 percent versus an increase of 6.2 percent in July and also largely driven by gold imports.

India's services PMI indicates that conditions stabilized in September, with the survey's headline index increasing from 41.8 in August to 49.8, its highest level since the start of the Covid-19 pandemic. The equivalent index for the manufacturing survey, published last week, also showed substantial improvement, with its index rising from 52.0 to 56.8, its highest level since 2012. Both indicate that India's economy has rebounded strongly as public health restrictions are eased.

Looking ahead*

On Wednesday in Asia/Pacific, Hong Kong's PMI is on the calendar. In Europe, German industrial production, French merchandise trade, UK Halifax House Price Index, and Italian retail sales reports are due. In North America, the Canadian Ivey PMI and US FOMC minutes are on tap.

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