Daily market review

United States

Equities pulled back across the board on Monday amid valuation worries and as the Covid trade returned. The Dow Jones industrial index declined 1.3 percent while both the S&P 500 and NASDAQ slipped percent.

Companies especially sensitive to Covid concerns and restrictions suffered the most, including cruise ships, airlines, restaurants, casinos, and hotels. Growth stocks also eroded on sentiment that valuations remain stretched, with multiples at recent highs despite economic and political uncertainty. Stay-at-home names fared relatively better including Walmart, up 1.7 percent.

Among sectors, worst off were real estate, industrials, information technology, and communications services, while energy was a relative outperformer.

Among the day's worst S&P 500 constituents, Chipotle was down 4.9 percent, Paycom Software lost 5.4 percent, and Stanley Black & Decker fell 5.2 percent as the iconic toolmaker was hit by an analyst downgrade. Among Dow stocks, Boeing declined 5.3 percent after an analyst downgrade.

In US economic news, construction spending rose 0.9 percent in November and very near Econoday's consensus for a 1.0 percent gain. Residential construction rose 2.6 percent in the month versus a 0.6 percent decline for nonresidential construction.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$1.15 to US$50.65 while spot gold jumped US$46.84 to US$1,944.17. The US dollar was mixed against major currencies. The US Treasury 30-year bond yield firmed 1 basis point to 1.66 percent while the 10-year note was unchanged at 0.92 percent.


Recovery optimism linked to rollout of vaccinations gave equities a boost Monday. The Europe-wide STOXX 600 rose 0.7 percent, the German DAX firmed 0.1 percent, the French CAC gained 0.7 percent, and the UK FTSE-100 gained 1.7 percent.

With the first AstraZeneca/Oxford jab delivered on Monday, markets focused on the start of UK public vaccinations, not on expectations, later fulfilled, for UK Prime Minister Boris Johnson to announce a nationwide anti-Covid lockdown as cases continue to mount. Other countries, including France and Germany, are expected to extend their restrictions.

Relatively upbeat manufacturing reports from China and Europe added to expectations for recovery in 2021. The UK purchasing managers index rose to 57.5, up from its 57.3 flash and nearly 2 points stronger than November's final mark. It was also a 3-year high.

Among sectors, best performers were basic resources, utilities, construction, and telecom, while lagging were real estate, retail, autos, and banks. UK stocks outperformed on a strong showing from miners, with Rio Tinto up 5.2 percent and BHP up 5.7 percent.

Asia Pacific

Most major Asian markets closed higher Monday, with strong Chinese PMI survey data supporting regional investor sentiment on the first trading day of the new year. The Shanghai Composite index and Hong Kong's Hang Seng index both closed up 0.9 percent, though shares of major property developers fell in both markets after Chinese authorities announced new limits on bank lending to the property sector last week.

The Caixan manufacturing PMI for China slowed from 54.9 in November to 53.0 in December, indicating that the sector's recovery from the initial impact of the pandemic has moderated but retains significant momentum. The equivalent surveys for the Japanese and Indian were also published Monday, rising 1 point in Japan to breakeven 50.0 indicating that manufacturing conditions have stabilized after a prolonged period of contraction and accelerating slightly for India to 56.4, indicating that recovery in the sector remains strong.

The advance estimate for fourth-quarter GDP in Singapore show the economy expanded by 2.1 percent on the quarter, slower than the 9.5 percent lockdown rebound of the third quarter.

Looking ahead*

On Tuesday in Europe, German retail sales, Swiss CPI, German unemployment, and Eurozone money supply reports are scheduled. In North America, Canadian industrial product prices and the US ISM manufacturing reports are due.

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