Daily market review

United States

A day of risk-off selling extended into the US hours Monday as investors feared the latest wave of Covid-19 cases among the unvaccinated would bring another leg down in the global economy. Meanwhile, some analysts believed the market has been overdue for a big correction, though others said the drop in bond yields signaled real concern over the outlook. The Dow Jones industrial average fell 2.1 percent, the S&P 500 lost 1.6 percent, and the NASDAQ lost 1.1percent.

Equity losses were heavy and nearly across the board. Cyclicals/value/reopening plays suffered the most, with travel stocks leading, especially airlines and cruise lines. Norwegian Cruise Line fell 5.5 percent, and Royal Caribbean was off 4 percent, while American Airlines dropped 4.1 percent and Delta sank by 3.8 percent. Boeing fell 5 percent.

Other big losers included energy, as oil prices sank on expectations for rising oil output amid sinking demand. Airlines and aerospace led industrials down. Materials also lagged, with industrial metals worst. Disney declined 3.5 percent to lead communications lower. Consumer discretionary was in line with the market's big loss, with restaurants and travel & leisure suffering in the reopening washout. Holding up best were technology, health care, and consumer staples – the old stay-at-home play, including Costco, up 0.9 percent, and Kroger, the grocery store chain, up 4.3 percent.

Among tech stocks leading the growth segment, chipmaker Nvidia rallied 3.4 percent, and cloud stock Twilio rose 1.1 percent. Luxury home exercise leader Peloton rose 7.1 percent, and home food delivery service Doordash gained 4.9 percent.

In the world of mergers and acquisitions, Zoom, the online video meeting company, fell 2.2 percent after agreeing to software provider Five9. In the real estate world, Kite Realty dropped 10 percent after agreeing to merge with Retail Properties of America, which declined 1 percent.

In US economic data, the NAHB/Wells Fargo housing market index dipped to 80 in July from 81 in June. Builders' optimism remains strong – if slightly slower – with solid sales of single-family homes (86 in July vs 87 in June) and upward movement for expected sales (81 vs 79). However, buyer traffic has eased off (65 vs 71).

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil plunged US$5.19 to US$68.08 while spot gold rose 25 cents to US$1,811.08. The US dollar rose vs. most major currencies but declined vs. safe-havens -- the Japanese yen and Swiss franc. The US Treasury 30-year bond yield dropped 10 basis points to 1.82 percent and the 10-year note yield also plunged 10 basis points to 1.20 percent.


Risk-off sentiment spurred by the spreading Delta variant hit European equities Monday. The Europe-wide STOXX 600 dropped 2.3 percent, the German DAX lost 2.6 percent, the French CAC fell 2.5 percent, and the UK FTSE 100 was down 2.3 percent.

Reopening plays suffered the most on the view that the recovery is faltering, and renewed lockdowns are coming, even as the UK went ahead with its full reopening Monday.

Among the hardest hit sectors were basic resources, banks, oil & gas, travel & leisure, autos & parts, telecom, construction, and industrials. Holding up better but still weaker were health care, food & beverage, and technology.

Travel stocks were hit by concern that their business is set to fall again as travel restrictions resume. IAG, owner of British Airways, lost 5.2 percent and Carnival, the cruise line, fell 8 percent. Banks dropped with falling bond yields, and energy stocks were hurt by a selloff in oil prices after OPEC+ proposed output increases in August. TotalEnergies fell 3.6 percent and BP lost 4.4 percent.

Monetary policy is in focus this week with the ECB meeting scheduled on Thursday, and investors expecting a change in ECB policy guidance in light of its new symmetrical approach to its 2 percent inflation target. Bank of England policy has also been in the news with comments from BOE officials, including Jonathan Haskel, who warned Monday that it was too soon to consider tightening, a more dovish view than two colleagues who appeared to argue for near-term tightening in comments last week.

Asia Pacific

More virus worries, negative headlines on US-China disputes, and a poor showing Friday on Wall Street sent equities lower Monday. Concern over the pandemic effect, including the prospect of a slowdown in the US economy, weighed on risk appetite and reopening plays in particular.

Chinese markets suffered from concern over the impact of renewed lockdowns in the region to contain the Delta variant, from the US imposition of new sanctions against Chinese officials in connection with the Hong Kong crackdown, and more harsh criticism of China from US Secretary of State Antony Blinken. These factors undercut risk appetite. Hong Kong lagged the region and the Hang Seng was down 1.8 percent.

Mainland markets were more mixed, with the CSI 300 up 0.3 percent and the Shanghai composite unchanged. Speculation over new steps from the People's Bank of China, possibly to include a cut in the loan prime rate on Tuesday, provided support. Growth stocks outperformed while value sagged. Outperforming were telecom services and health care while energy and materials lagged.

Taiwan and Korea suffered from weakness in tech stocks. The Taiex slipped 0.6 percent and Korea's KOSPI fell 1.0 percent. Big tech stocks lagged, including chipmaker SK Hynix, down 2.1 percent.

Japanese markets saw a broad-based selloff on worries the Delta variant will stall the global recovery, plus focus on the impact of surging case counts in Japan and shortages of vaccine. The Nikkei and the broader Topix both fell 1.3 percent. Worst hit were glass & ceramics, appliances, metals, and airlines.

Covid-19 worries drove Australian markets down as the All Ordinaries index fell 0.9 percent. Investors focused on extension of lockdowns in Sydney and Melbourne. Stocks pegged to economic recovery suffered as investors switched into growth, including biotech. Lagging were materials, energy, industrials, and banks.

Among companies in focus, Toyota Motors declined 1.3 percent after withdrawing its advertisements related to the Olympics. China Evergrande, the property developer, fell 16 percent after a court froze some its bank assets, which raised new concern over its financial stability. Alibaba fell 3.3 percent after a Korean regulator ordered its Kakao unit to revise its IPO prospectus, which will delay the share offering.

Looking ahead*

In Asia/Pacific, the Reserve Bank of Australia will release its meeting minutes, plus the Japanese CPI report is due. In Europe, Swiss merchandise trade, German PPI, and Eurozone ECB lending survey reports are scheduled. In North America, the U.S. housing starts report is on tap.

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