Daily market review

United States

Technology and communications stocks fell back from recent highs on profit-taking to lead growth stocks lower Thursday while pockets of strength in value/cyclicals helped the Dow edge up. The Dow Jones industrial average rose 0.2 percent, the S&P 500 eased 0.3 percent, and the NASDAQ was off 0.7 percent.

High-beta chip stocks led tech lower, along with megacaps after several set recent highs this week. Taiwan Semiconductor dropped 5.5 percent in US trading after reporting weaker than expected results. Chipmakers Nvidia fell 4.4 percent and Intel declined 1.3 percent after the Taiwan Semiconductor results.

Megacaps Apple, down 0.5 percent, Facebook, down 0.9 percent, and Google, down 0.6 percent, weighed on the averages. Holding up best were financials, industrials, and materials, sectors that have been relatively weak lately, plus utilities, as the market took on a defensive cast.

A second day of testimony from Fed Chair Jerome Powell reiterating his patient stance on the economy left market expectations intact, and markets appeared ready to take back some of their recent gains.

Financials got a modest lift from quarterly results, with Morgan Stanley up 0.2 percent after topping earnings and revenues expectations but coming up short on its trading revenues. Energy stocks lagged again with oil prices falling back. Retailers and restaurants weighed on consumer discretionary, plus Amazon declined 1.4 percent.

In a mixed batch of US economic data, jobless claims continued to trend lower, suggesting ongoing healing in the labor market. Philadelphia Fed manufacturing figures slowed but still showed strong growth. New York Fed manufacturing figures surged above expectations. Finally, industrial production missed expectations as the manufacturing component fell.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil dropped US$1.04 to US$73.34 while spot gold rose US$3.13 to US$1,829.36. The US dollar rose vs. most major currencies. The US Treasury 30-year bond yield fell 5 basis points to 1.93 percent and the 10-year note yield dipped 4 basis points to 1.31 percent.


Poor earnings and rising Covid cases across Europe hit equities Thursday. The Europe-wide STOXX 600, the German DAX, and the French CAC all fell 1.0 percent, and the UK FTSE 100 was off 1.1 percent.

Surging coronavirus case counts across Europe renewed worries about the recovery, and hit cyclicals hardest, with retail, oil & gas, travel & leisure, and autos lagging the most. Holding up best were chemicals, basic resources, and banks.

Surprisingly hawkish comments from Bank of England officials added to the sour mood. Two Bank of England rate setters suggested the UK recovery has progressed enough to warrant a reduction in monetary accommodation. Forward guidance set at the latest Monetary Policy Committee meetings "no longer rules out tightening," said external MPC member Michael Saunders, adding that conditions on tightening "have now been met." Separately, Deputy BOE Governor Dave Ramsden on Wednesday suggested a policy shift may come relatively quickly. "I can envisage those conditions for considering tightening being met somewhat sooner than I had previously expected," he said.

A batch of disappointing quarterly results undercut risk appetite too. Siemens Energy fell 11 percent after abandoning its profits guidance on cost problems at Siemens Gamesa, its wind power unit, which in turn dropped 12 percent. Tomtom, the Dutch electronics company, fell 14 percent, and Hansa Biopharma, the Swedish biotech, fell 6.6 percent, on earnings misses.

Heavily-weighted energy companies were among the day's worst performers, with BP off 2.9 percent and Royal Dutch Shell down 2.5 percent.

In economic news, UK claimant count unemployment dropped by 114,800 in June. This was its fourth straight decline and while slightly less than the market consensus, the second steepest on record after May's revised 151,400 decrease. It was also large enough to reduce the jobless rate from a downwardly revised 6.0 percent in May to 5.8 percent.

Asia Pacific

Equities were mixed Thursday with China managing gains despite disappointing economic data and Japan lagging on the latest coronavirus wave.

Chinese equities initially sold off after weaker-than-expected second-quarter GDP figures and a stingy reserve injection from the People's Bank of China. But reassuring comments on the recovery outlook from the Chinese National Bureau of Statistics helped equities bounce back into the close, along with focus on more upbeat retail sales data for June. Investors are also eyeing more PBOC stimulus after last week's reduction in bank reserve requirements. Hong Kong tracked the mainland higher with the Hang Seng up 0.8 percent.

Covid-19 worries hit Japanese stocks as new cases in Tokyo topped 1,000 for the first time since May. The rise in cases comes a week before the start of the Olympics and as focus turns to the corporate earnings season, both hitting risk appetite. Nikkei dropped 1.2 percent and the broader Topix was also off 1.2 percent. Losses were nearly across the board with worst performers including utilities, pharma, finance, and precision instruments.

Taiwan outperformed the region with a gain of 1.1 percent. Strength in big tech stocks helped Korea rise despite hawkish signals from the Bank of Korea, as the KOSPI rose 0.7 percent. Rising Korean coronavirus case counts capped the gains.

Anti-Covid lockdowns in Sydney and Melbourne drove Australian markets slightly lower though strength in miners limited the decline. The All Ordinaries index eased 0.2 percent. On the positive side, Australian unemployment dropped unexpectedly, suggesting a more robust recovery was under way before the latest disruptions. Sectors were mixed with buy-now-pay-later stocks hitting tech on news Apple will enter the market. Industrials and financials lagged. Travel stocks were hurt by the bad virus news. Holding up best were materials as industrial and precious metals gained.

In economic news, Chinese retail sales rose 0.81 percent on the month in June, as they did in May, and rose 12.1 percent on the year after advancing 12.4 percent previously, above the consensus forecast for growth of 10.8 percent. Meanwhile, China's economy expanded 1.3 percent on the quarter in the three months to June, up from growth of 0.6 percent in the three months to March, and in line with the consensus forecast. GDP rose 7.9 percent on the year, slowing from record-high growth of 18.3 percent previously.

Separately, Australia's labour market showed further improvement in June, though the data largely pre-date the imposition of tight public health restrictions late in the month in response to an outbreak of Covid-19 cases in its largest city, Sydney. Employment growth slowed but remained positive, while the unemployment rate fell for the eighth consecutive month back to its lowest level since 2010.

Looking ahead*

In Asia/Pacific, New Zealand CPI and Singapore merchandise trade reports are due. In Europe, Italian merchandise trade, Eurozone HICP, and Eurozone merchandise trade reports are scheduled. In North America, Canadian housing starts, US retail sales, US business inventories, US consumer sentiment, and US Treassury International Capital reports are on tap.

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