Daily market review

United States

Another uptick in US market interest rates whacked growth stocks Wednesday, with cyclicals/value holding up better on the recovery narrative. The Dow Jones industrial average declined 0.4 percent, the S&P 500 fell 1.3 percent, and the NASDAQ composite dropped 2.7 percent.

Highly valued mega-cap stocks led the selloff, including momentum favorites Apple, down 2.5 percent, Microsoft, down 2.7 percent, Amazon, down 2.9 percent, and Tesla, down 4.8 percent.

Among sectors, worst off were technology, health care, materials, and utilities, while faring best were industrials, financials, and energy.

US Treasury yields continued their recent ascent, with the benchmark 10-year yield nearing 1.50%. Fed officials, meanwhile, continued to avoid expressing alarm about rising long rates. Chicago Fed President Charles Evans, for example, said higher yields show the market pricing in a better economic outlook and expectations for more Treasury supply.

Among companies in focus, Chevron rose 1.1 percent to lead energy stocks as oil prices perked up ahead of Thursday's OPEC+ meeting. United Airlines rose 2.6 percent on the reopening trade to help boost industrials. JP Morgan rose 2.0 percent on the steeper yield curve.

In US economic news, the Fed's Beige Book upgraded economic growth to "moderate" from the "modest" conclusion in the last report in January, with the outlook taking a more "optimistic turn" in response to the vaccine rollout and approach of warmer weather. In data, ADP estimated private payrolls in February rose 117,000 in what is expected to be a mediocre employment report on Friday.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 71 cents to US$64.04 while spot gold slipped US$19.05 to US$1,714.71. The US dollar was mostly up vs. major currencies. The US Treasury 30-year bond yield was up 5 basis points at 2.25 percent while the 10-year note yield rose 6 basis points to 1.46 percent.


Equities retreated from early highs to end flat to higher as the Europe-wide STOXX 600 firmed 0.1 percent, the German DAX rose 0.3 percent, the French CAC rose 0.4 percent, and the FTSE 100 gained 0.9 percent.

Markets reacted badly to a Bloomberg report saying ECB officials see no need for dramatic steps to stem the recent rise in bond yields. On the positive side, markets noted reports that German Chancellor Angela Merkel was planning a gradual relaxation of virus curbs. UK markets outperformed on positive reaction to the UK budget, which includes a five-month extension of a government jobs rescue plan.

Among sectors, travel & leisure, autos, banks, media, industrials, construction outperformed, while lagging were utilities, technology, health care, real estate, and chemicals.

Among companies in focus, automaker Renault gained 5.2 percent and Companie Saint Gobain rose 4 percent. On the downside, Sportech, the UK online gambling company, fell 12 percent on an analyst downgrade. Melexis, the Belgian chipmaker, fell 12 percent after a share placement.

Asia Pacific

Equities perked up Wednesday in response to Tuesday's steadier showing for US Treasury yields, and speculation that the People's Bank of China may ease bank reserve requirements.

Risk assets also reacted favorably to comments from Fed officials signaling no rush to raise rates, and in particular, Fed Governor Lael Brainard's comment Tuesday that the recent spike in US yields had caught her attention. Markets were heartened by upbeat regional economic data, including better-than-expected Australian GDP figures.

China's Shanghai Composite Index gained 2.0 percent and the CSI300 index rose 1.9 percent, while Hong Kong's Hang Seng gained 2.7 percent, with financials leading.

The Markit China PMI services index fell from 52.0 in January to 51.5, indicating activity in the sector expanded for the 10th consecutive month but at a slower pace for the third consecutive month. The manufacturing PMI, published earlier in the week, fell from 51.5 to 50.9. The resulting composite index dropped from 52.2 in January to 51.7 in February, its lowest since April 2020.

Japanese markets edged up, led by value/cyclicals, with the Nikkei 225 and the Topix both up 0.5 percent, paced by hopes for global recovery as vaccines are rolled out. Materials stocks outperformed, with Kobe Steel up 9.1 percent.

Japanese gains were capped by local concerns about the coronavirus, as reports said Tokyo was likely to extend its lockdowns.

Australian shares firmed on improving recovery hopes, with the All Ordinaries index up 0.8 percent. Sentiment drew support from news that Australian GDP rose 3.1 percent on the quarter in the three months to December, above expectations for 2.5 percent growth. GDP rose by 3.3 percent in the prior quarter.

Sector performance was mixed with materials strong on rising commodities prices, and banks lifting financials. Technology, health care, and consumer staples lagged. Among companies in focus, buy-now-pay later firm Afterpay fell 2.2 percent while Qantas Airways rose 2.9 percent to boost industrials.

Looking ahead*

On Thursday in Asia/Pacific, Korean CPI, Korean GDP, and Australian goods and services trade reports are due. In Europe, UK PMI construction, Eurozone retail sales, and Eurozone unemployment reports are scheduled. In North America, US jobless claims, US factory orders, and US productivity and costs reports are on tap.

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