Daily market review

United States

Growth stocks topped value in a mixed showing for markets Wednesday as interest rates slipped again after reassuring comments from Fed Chair Jerome Powell, who suggested Fed tightening remained distant. The Dow Jones industrial average and the S&P 500 both rose 0.1 percent, and the NASDAQ slipped 0.2 percent.

US 10-year note yields declined 7 basis points on the day despite another hot US inflation reading, as the market continued to accept central bank assurances that price pressures would pass as the reopening unfolds.

Among equity sectors, the FANMAG complex held up best, with other defensive sectors outperforming, including utilities and real estate. Consumer staples outperformed, with support from cosmetics, beverages, and tobacco. Reports that Apple, up 2.4 percent, would raise iPhone production, helped technology. Google was up 0.8 percent to bolster communications services.

On the downside, industrials suffered from a selloff in machinery, aerospace, and building products. Materials lagged on declines in chemical stocks. Banks dragged financials lower after earnings from Bank America, down 2.5 percent, and Wells Fargo, down 4.0 percent. Energy stocks trailed on falling crude oil prices, with ExxonMobil off 2.2 percent.

Among companies reporting, Delta Airlines slipped 1.6 percent despite topping earnings and revenues expectations and reporting recovering business conditions. Citigroup gave up initial gains after an earnings beat to end down 0.4 percent.

In US economic data, producer prices came in hot, headlined by a 1.0 percent overall monthly rise in June that surpassed Econoday's 0.6 percent median forecast as well as the 0.9 percent high forecast. Food and energy, taken together, are not in play, excluding which producer prices also rose 1.0 percent on the month to nearly double the high forecast of 0.6 percent.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil dropped US$1.12 to US$74.38 while spot gold rose US$17.85 to US$1,826.23. The US dollar fell sharply vs. most major currencies. The US Treasury 30-year bond yield fell 7 basis points to 1.98 percent and the 10-year note yield dipped 7 basis points to 1.35 percent.


A mixed showing across sectors left European equity indexes flat to lower Wednesday, though major indexes recovered from their early lows after soothing comments from Fed Chair Jerome Powell. The Europe-wide STOXX 600 eased 0.1 percent, the German DAX and the French CAC were flat, and the UK FTSE 100 slipped 0.5 percent. UK markets lagged after bearish UK inflation figures ratcheted up pressure on the Bank of England to raise rates.

Worst performers included real estate, utilities, and travel & leisure, while holding up best were basic resources and banks. Among companies, airlines were notable decliners on concerns about travel restrictions, with IAG off 1.2 percent and EasyJet down 4.4 percent after analyst downgrades. TUI, the big German travel agency, dropped 7 percent on news of more holiday cancellations due to Covid.

In economic news, UK consumer prices were again much stronger than expected in June. A 0.5 percent monthly gain was more than double the market consensus and lifted the annual inflation rate from 2.1 percent to 2.5 percent. This was only the second time since July 2019 that the rate has been above the 2 percent target and the highest reading since August 2018.

Asia Pacific

Equities retreated Wednesday on bearish US CPI data and rising Covid case counts to correct after several days of gains. Activity was constrained ahead of Fed Chair Jerome Powell's appearance.

Chinese equities lagged as they reacted badly to the upside surprise in US CPI data and rising Covid case counts in several Asian countries. The benchmark CSI 300 dropped 1.2 percent and the Shanghai composite fell 1.1 percent. Among sectors, only health care and energy showed gains, while materials and consumer discretionary suffered the most. Hong Kong tracked mainland markets lower with the Hang Seng down 0.6 percent.

Japanese stocks edged down in a mixed showing with value stocks falling and growth holding up better. The Nikkei eased 0.4 percent and the broader Topix was off 0.2 percent. Best were utilities and construction while lagging were rubber products and shipping stocks.

Korea edged down as the KOSPI declined 0.2 percent and the Taiex was flat. Sentiment was hurt by rising Covid case counts and negative reaction to the US CPI figures.

Australian markets managed modest gains as precious metals and utilities popped up but risk appetite broadly was hurt by more bad Covid news and the surprise RBNZ announcement that it would end its asset purchases. The All Ordinaries index edged up 0.3 percent. Utilities led the winners on reports suggesting Spark Infrastructure Group, an Australian investment fund managing electricity assets, might be acquired. Spark rose 8 percent. Consumer staples also outperformed. Lagging were travel operators on the virus fallout, while banks were soft.

In economic news, the RBNZ announced that it will discontinue its asset purchase program later this month, a decision they characterize as a reduction in "the current stimulatory level of monetary settings."

Looking ahead*

In Asia/Pacific, the Bank of Korea policy announcement, the Bank of Japan policy announcement, the Chinese house price index, Chinese fixed-asset investment, Chinese GDP, Chinese industrial production, Chinese retail sales, and Australian labour force reports are all due. In Europe, the UK labour market and Italian CPI reports are scheduled. In North America, US jobless claims, Philadelphia Fed manufacturing, Empire State manufacturing, US import and export prices, and US industrial production figures are due, plus Fed Chair Jerome Powell's second day of testimony.

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