Daily market review

US mixed, growth stocks better post-CPI; Europe Steady, Asia better

United States

A better showing for growth stocks and relative weakness in cyclicals left US equities higher Thursday as US interest rates declined despite an upside surprise in US inflation figures. The Dow Jones industrial average rose 0.1 percent, the S&P 500 gained 0.5 percent, and the NASDAQ was up 0.8 percent.

Talk that US inflation – and growth – may be peaking spurred rotation out of cyclical/value stocks into growth as the day wore on, and as US Treasury yields receded after an initial uptick on the CPI report. Some analysts noted institutions shifting out of stocks into fixed income.

US consumer prices again topped expectations in May, up 0.6 percent following a 0.8 percent gain in April. The 12-month rate soared to 5.0 percent, the highest since August 2008. Excluding food and energy, CPI rose 0.7 percent on the month after rising 0.9 percent in April, lifting the 12-month rate to 3.8 percent, both above expectations.

Among stock sectors, health care, consumer staples, and technology fared best, while financials and materials lagged. Communications services outperformed, with Google up 1.2 percent and Zoom Communications up 3.9 percent.

Among companies in focus, Merck rose 2.9 percent after a big US order for its anti-Covid drug. Walgreens gained 3.5 percent and Cisco rose 1.9 percent after technical breakouts. On the downside, big banks and financials suffered from declining interest rates, with Wells Fargo down 1.8 percent and American Express off 1.1 percent. Homebuilders had a bad day, with Beazer down 5.2 percent and Lennar off 3 percent.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 41 cents to US$72.41 while spot gold rose US$7.87 to US$1,897.74. The US dollar weakened vs. most major currencies. The US Treasury 30-year bond yield fell 3 basis points at 2.14 percent and the 10-year note yield fell 4 basis points to 1.45 percent.

Europe

Equities were narrowly mixed near recent highs Thursday after the ECB policy announcement and US inflation figures left markets generally unfazed. The Europe-wide STOXX 600 was flat, the German DAX eased 0.1 percent, the French CAC was down 0.3 percent, and the UK FTSE 100 firmed 0.1 percent.

The ECB left its policy settings unchanged and said it was too soon to consider tapering asset purchases, generally a relief to market participants who feared a more hawkish statement. At the same time, the ECB raised its growth and inflation outlook, and said its assessment of risks is broadly balanced, a change from previous assessments that downside risks were greater.

On US inflation figures, investors generally viewed the modest upside surprise on CPI as unlikely to spur any faster withdrawal of US monetary stimulus. In other macro news, comments from UK Prime Minister Boris Johnson suggested the UK is likely to delay its planned lifting of anti-Covid restrictions due to high case counts, a market negative.

Among sectors, telecom was the day's big winner, with BT up 8.2 percent, after Altice, the US cable provider, bought a stake in the UK telecom. Tech was another gainer, paced by chipmakers, including SOITEC, the semiconductor materials maker, up 2.9 percent, on a revenues beat and raised guidance. On the downside, travel & leisure stocks lagged after industry leaders panned US and UK travel reopening measures. Retail stocks also lagged, with Essilor Luxottica down 0.1 percent on a report it will have to sell stores to avoid antitrust problems with its planned acquisition of Grandvision, the Dutch retailer. Automakers slipped on worries over supply bottlenecks, with BMW down 1.8 percent.

Among companies in focus, Aixtron, the German materials maker, rallied 17 percent, up big for a second straight day, after boosting its guidance. AutoTrader gained 6.8 percent on an earnings and revenues beat.

Asia Pacific

Asia/Pacific equities were mostly better Thursday, with China rising on unusual positive news on the US-China trade relationship.

Chinese markets outperformed the region with the CSI up 0.7 percent and the Shanghai composite rising 0.5 percent. Risk appetite benefited from a report that Chinese Commerce Minister Wang Wentao and US Commerce Secretary Gina Raimondo had spoken by telephone and agreed to promote cooperation on trade and investment. This news contrasted with the negative tone of other recent US-China headlines. Among sectors, growth topped value, with technology and healthcare outperforming while utilities and financial lagged.

Weakness in financials offset gains in property stocks to leave the Hong Kong Hang Seng index flat. Activity was limited ahead of the US CPI report. Among companies in focus, Meituan, the online shopping leader, rose 1.6 percent on reports it is staffing up to respond to rising consumption.

Japanese equities were mixed with the Nikkei up 0.3 percent and the broader Topix unchanged. Sentiment was bolstered by additional regional reopenings coming this weekend. Among sectors, shipping stocks outperformed, along with instruments, pulp & paper, and iron & steel. On the downside, materials, construction, and agriculture stocks lagged.

Among companies in focus, Albert, the software company, jumped 19 percent after announcing a joint venture with SBI Holdings, the financial services company, which in turn rose 0.6 percent. Tomoe Engineering rose 5.7 percent after an earnings beat. On the downside, chipmaker Renesas fell 2.3 percent on news it will issue debt to fund its takeover of Dialog Semiconductor.

Australian markets advanced as the Australian interest rates declined, with the All Ordinaries up 0.5 percent. Best were real estate, utilities, and telecom, with strength in software and buy-now-pay-later stocks boosting technology shares. Lagging were miners, travel and gaming, and energy, as commodities slipped.

Looking ahead*

On Friday in Asia/Pacific, the Indian industrial production report is due. In Europe, UK industrial production, UK merchandise trade, UK monthly GDP, and Italian unemployment reports are due. In North America, the US consumer sentiment report is scheduled.

Global Stock Market Recap

Global Bond Market Recap

Global Currency Recap

Commodities and currencies

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