Daily market review

United States

Equities gave up early gains to end nearly flat Friday in cautious trading headed into the weekend. Equities saw better gains earlier as interest rates managed modest declines in the face of the latest scary-seeming US inflation figures. The Dow Jones industrial average rose 0.2 percent, the S&P 500 rose 0.1 percent, and the NASDAQ was up 0.1 percent.

Growth stocks outperformed as investors appeared to take their cue from Federal Reserve officials who have argued that inflation is likely to retreat later in the year. News that the PCE price index rose 3.6 percent from a year ago just exceeded market expectations. Meanwhile, markets see the Biden administration's proposed $6 trillion budget for fiscal 2022 as another market positive.

Among sectors, outperformers included bond proxies -- utilities and real estate -- plus technology and health care. Financials and consumer staples were in line. Tech stocks got a boost from chipmakers, with Advanced Micro Devices up 2.1 percent and Nvidia up 4.9 percent. Lagging were materials, consumer discretionary, industrials, and communications, with media stocks selling off.

Among companies in focus, Salesforce, the software business, rose 5.4 percent and Ulta Beauty, the cosmetics company, rose 5.2 percent, on revenues and earnings beats. On the downside, Costco fell 2.4 percent after warnings of supply chain trouble and lower margins post-pandemic. Boeing fell 1.5 percent after suspending Dreamliner deliveries due to an FAA request for information on quality issues.

In US economic news, personal income fell 13.1 percent in April and just inside Econoday's low estimate for a 14.0 percent decrease. Personal spending saw a below-expected 0.5 percent increase on the month, following an upwardly revised 4.7 percent gain in March. As expected, price readings continued to pick up, with the PCE index up 0.6 percent on the month, lifting the 12-month rate to 3.6 percent from 2.4 percent in March, the largest increase since September 2008. These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 23 cents to US$69.63 while spot gold rose US$5.90 to US$1,903.61. The US dollar rose vs. most major currencies. The US Treasury 30-year bond yield fell 2 basis points to 2.26 percent and the 10-year note yield declined 2 basis points to 1.58 percent.


The reopening trade lifted European equities markets Friday with financials getting a boost from rising UK interest rates. The Europe-wide STOXX 600 gained 0.6 percent, the German DAX rose 0.7 percent, the French CAC advanced 0.8 percent, and the UK FTSE 100 was unchanged.

Banks and insurers got a boost from rising UK interest rates after Gertjan Vlieghe, a member of the Bank of England's Monetary Policy Committee, said a rate hike could come late next year if the economy continues to recover as expected. Strength in sterling on rising rates hit UK exporters, especially miners and oil majors.

An upside surprise in the Eurozone economic sentiment report supported risk sentiment, along with the Biden administration's expansive budget plans. Among sectors, technology and retail outperformed. Travel and leisure, auto and parts and basic resources lagged.

In economic data, the EU Commission's new survey found another significant improvement in economic sentiment (ESI) this month. From a marginally firmer revised 110.5 in April, the ESI rose 4 points to a much higher than expected 114.5. This was its strongest level since January 2018 and means that the index has advanced more than 21 points in the last three months.

Asia Pacific

Carryover from Thursday's gains on Wall Street gave Asia/Pacific equities a boost Friday with Japan leading in a modest risk-on move though Chinese markets retreated after a very strong week.

For Chinese markets, the rising yuan this week helped attract overseas capital, while softer economic data and a government crackdown on commodity speculators soothed worries about monetary policy tightening. These factors helped the CSI300 rise about 6 percent on the week. But the CSI declined 0.3 percent and the Shanghai composite eased 0.2 percent on Friday after the PBOC issued a statement late warning against one-way currency bets.

Hong Kong's Hang Seng index was flat, with tech and health care stocks falling back to offset gains in materials stocks as commodities perked up along with US cyclicals after the Biden administration proposed more aggressive spending in its latest budget, and on hopes for US agreement on infrastructure spending.

Japanese equities tracked US markets higher with gains across the board, and value/cyclicals outperformed to draw even with growth/tech stock gains earlier in the week. Dovish comments from Bank of Japan Governor Haruhiko Kuroda supported the market, to offset the negative impact of reports that Japan will extend its anti-Covid state of emergency until June 10. The Nikkei rallied 2.1 percent and the broader Topix gained 1.9 percent. The advance also reflected bargain-hunting in stocks that were hit Thursday by changes in the MSCI index.

Rising commodities prices lifted Australian markets with the All Ordinaries up 1.1 percent. Iron ore producers and energy paced the winners, with air and transportation infrastructure outperforming too, along with real estate, and banks. Tech stocks lagged on a renewed selloff in buy-now-pay-later stocks.

In economic data, Japanese labor market data came in mixed. The unemployment rate rose from 2.6 percent in March to 2.8 percent in April, just above the 2.7 percent consensus forecast. Employment, however, rose on the month for the first time since March 2020, with the number of employed persons increasing by 290,000 persons after dropping by 510,000 persons previously.

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