Daily market review

United States

An afternoon selloff in megacaps/growth stocks plus weakness in energy and telecoms dragged the major indexes lower Tuesday as the market remained in consolidative mode. The Dow Jones industrial average fell 0.8 percent, the S&P 500 lost 0.9 percent, and the NASDAQ was off 0.6 percent.

After advancing the last several sessions, energy stocks lagged: Exxon Mobil fell 2.8 percent and Chevron was down 4.2 percent. Oil prices took a hit on reports of progress in US-Iran nuclear talks.

Megacaps gave up morning gains in the afternoon with Facebook down 1.7 percent, Apple down 1.1 percent, and Microsoft off 0.9 percent. Defensive sectors outperformed, including health care, real estate, and utilities.

Disappointing US housing starts data were a negative, with home builder Lennar down 2.6 percent, and Pulte down 3.2 percent. Telecom suffered as AT&T fell 5.8 percent after announcing a dividend cut. T-Mobile fell 3.7 percent, and Verizon was down 1.3 percent.

Coinbase, the cryptocurrency trading platform, fell 3.7 percent after surprising the market with a debt offering, and as crypto weakened broadly.

Retail stocks held up better after strong results and stronger guidance from Walmart, up 2.2 percent. MGM Resorts was another winner, up 1.9 percent after an upgrade at JP Morgan.

In US economic news, housing starts fell 9.5 percent to an annual rate of 1.569 million in April, below Econoday's consensus of 1.705 million. Permits rose 0.3 percent to an annual rate of 1.760 million in April, below expectations of 1.780 million.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 71 cents to US$68.83 while spot gold rose US$2.39 to US$1,868.60. The US dollar fell vs. major currencies. The US Treasury 30-year bond yield was steady at 2.36 percent and the 10-year note yield was unchanged at 1.64 percent.


Better virus news helped value/cyclicals outperform Tuesday as vaccinations continue in the US and Europe. The Europe-wide STOXX 600 rose 0.2 percent, the German DAX eased 0.1 percent, the French CAC slipped 0.2 percent, and the UK FTSE 100 was unchanged.

In virus news, UK Prime Minister Boris Johnson said reopening would proceed despite worries about the spread of new variants; the Netherlands plans to ease restrictions this week; Germany will make vaccines available to all adults in June; and Spain widened its target group for vaccinations.

The reopening trade helped travel & leisure outperform, followed by retail, real estate, financial services, autos, oil & gas, and industrials. Lagging were telecom, food & beverage, chemicals, health care, personal & household goods, basic resources, and construction.

Telecoms suffered from losses at Iliad, the French telecom, off 10 percent on a revenues miss, and Vodaphone, the UK telecom, which fell 9 percent on an earnings miss. On the plus side, Sonova, the Swiss hearing aid company, rose 10 percent on an earnings beat. Imperial, the UK tobacco company, rose 1.5 percent after solid results and a dividend increase.

In economic news, UK claimant count data showed the number of people out of work fell 15,100 to 2.629 million in April following a sharply revised 19,400 decline in March (was up 10,100); ILO data showed joblessness falling 121,000 in the first quarter to 1.623 million, enough to reduce the jobless rate by a tick to a surprisingly low 4.8 percent.

Asia Pacific

Rising commodities prices, dollar weakness, and dip-buying lifted Asian markets Tuesday, with Taiwan and Japan leading the winners, and China lagging, though still higher.

Bargain-hunting in transports, materials, and energy stocks led Chinese markets higher, with the Shanghai composite up 0.3 percent and the CSI 300 up 0.1 percent. The ongoing rally in copper and iron ore prices gave materials stocks a lift. Gains were limited by adverse reaction to geopolitical tensions, amid more anti-China rhetoric from US and European diplomats, and the US Senate approving a bill to boost technology research to counter China.

The Hong Kong Hang Seng rose 1.4 percent, led by telecom, tech, and energy shares. News of falling Covid-19 case counts in Hong Kong boosted risk appetite. Among movers, Galaxy Entertainment rose 1 percent after scaling back its planned investment in Japanese casinos. Alibaba rose 1.1 percent on news of an investment to expand its online business in southeast Asia.

Taiwan stocks rebounded sharply on Tuesday, paced by a rally in chipmakers after a Finance Ministry statement that the government stabilization fund was monitoring the market, and presumably, might be buying stocks. Taiwan's Taiex index gained 5.2 percent after its 3 percent drop Monday when the government extended anti-Covid lockdowns.

Dip-buying also lifted Japan's equities, with the Nikkei up 2.1 percent and the broader Topix up 1.5 percent. Gains were nearly across the board, with metals, insurance, and miners outperforming along with transports and banks. The market appeared to shrug off Japanese GDP figures showing a larger-than-expected contraction in the first quarter. Among companies in focus, Mitsubishi UFJ Financial rose 2.3 percent after an earnings beat and better guidance. Noritz, the water heater manufacturer, rose 12 percent on a big earnings beat.

Rising commodities prices helped lift the Australian All Ordinaries by 0.6 percent and kept inflation worries in focus. News of rising Chinese steel output boosted iron ore futures, but investors remain wary of Chinese efforts to limit commodity price increases. Materials and energy led the day's winners, while banks and tech stocks also outperformed. Lagging were consumer discretionary stocks, industrials, and defensives including real estate and utilities.

In economic news, Japan's economy marked the first quarter-on-quarter contraction in three quarters in January-March, hit by sluggish consumer spending and business investment. Real GDP fell 1.3% on quarter for an annualized decline of 5.1%. Downside risk for the second quarter may be growing as more regions enter lockdowns.

Looking ahead*

On Wednesday in Asia/Pacific, New Zealand PPI, Australian wage price index, and China's loan prime rate are due. In Europe, reports are due on UK CPI, UK PPI, and Eurozone HICP. In North America, Canadian CPI and US FOMC minutes are scheduled.

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