Daily market review

United States

Equities retreated Tuesday as growth fears were fanned by mixed US economic data, rising Covid-19 case counts, and weakness in Asian markets. The Dow Jones industrial average declined 0.8 percent, the S&P 500 slipped 0.7 percent, and the NASDAQ dropped 0.9 percent. The indexes recovered from their worst levels near the close.

Amid worries that the recovery may be stalling, investors keyed on a surprising drop in US retail sales and a disappointing US housing market report even as US industrial production topped expectations. Retail stocks suffered from concerns about consumer spending after the retail sales report, which followed last week's surprising plunge in US consumer sentiment, presumably reflecting the impact of the Delta virus.

Meanwhile, Federal Reserve Chair Jerome Powell avoided specific comment on monetary policy during an online forum, but -- without prompting -- he repeated that the pandemic is "still very much with us," it's unclear what the Delta variant means for the outlook, and employment has not recovered to pre-pandemic levels.

Growth stocks lagged value/cyclicals, but both weakened. Worst were consumer discretionary, financials, and industrials, while holding up best were defensive plays -- health care and consumer staples.

Home Depot, down 4.3 percent, was a big weight on the Dow after its same-store sales missed expectations, and observers fretted that the home remodeling boom is going bust. Other consumer stocks tracked Home Depot lower, with sporting goods maker Under Armour down 6.0 percent and Generac, the backup residential power generator business, off 4.9 percent. On the positive side, Kroger, the grocery store, rose 4.6 percent after news that Berkshire Hathaway had taken a stake.

In US economic news, retail sales fell 1.1 percent in July, a larger contraction than the 0.2 percent decline expected by Econoday's consensus. Excluding motor vehicles, sales were down 0.4 percent, while analysts had expected a 0.2 percent increase. Separately, industrial production rose 0.9 percent in July, powered by an 11.2 percent increase in motor vehicles which accounted for about half of the overall gain. Excluding motor vehicles, industrial production was up 0.4 percent. Finally, the housing market index fell 5 points in the August reading to completely miss Econoday's consensus range. This is the lowest showing of the pandemic boom.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 50 cents to US$69.20 while spot gold fell US$3.10 to US$1,784.53. The US dollar rose vs. most major currencies. The US Treasury 30-year bond yield eased 1 basis point to 1.92 percent and the 10-year note yield fell 1 basis point at 1.26 percent.


Equities were narrowly mixed Tuesday with cyclicals hurt by worries about the global recovery linked to the coronavirus and slowing Chinese growth. The Europe-wide STOXX 600 firmed 0.1 percent, the German DAX was flat, and the French CAC eased 0.3 percent. The UK FTSE 100 rose 0.3 percent, with support from relative strength in basic resources.

Weakness in Chinese markets and rising virus case counts in Asia/Pacific kept risk assets on the defensive. Fallout from the surprisingly rapid Taliban takeover in Afghanistan remained in focus and spurred speculation that a wounded Biden administration would be less likely to secure promised investments aimed at boosting economic growth.

Reopening stocks lagged, including travel & leisure, amid uncertainty about possible new travel restrictions. IAG, the owner of British Airways, fell 3.2 percent, and Carnival, the cruise line, fell 1.3 percent. Banks lagged, with Jyske, the Danish bank, down 7.3 percent after an earnings miss.

Basic resources outperformed, with BHP up 3.4 percent after an earnings beat and announcing a deal to sell its petroleum assets to Woodside Petroleum. Tech stocks outperformed, paced by Just Eat Takeaway, the UK food delivery service, up 2.9 percent, after topping earnings expectations. Link Mobility, the Norwegian cloud communications firm, jumped 15 percent after an earnings beat and better guidance.

Asia Pacific

The latest salvo in China's crackdown on big tech hit Asian equities Tuesday, along with risk aversion due to rising global Covid-19 cases and the Taliban takeover in Afghanistan.

Chinese markets led the region lower after Chinese regulators issued new rules targeting what they consider monopolistic behavior and data privacy practices in the internet industry. On the positive side, analysts increasingly expect the People's Bank of China to announce new measures to support growth, including a cut in bank required reserves. Separately, BlackRock said China no longer should be considered an emerging market, and urged investors to boost their allocation to Chinese assets.

The CSI 300 dropped 2.1 percent and the Shanghai composite fell 2.0 percent. Losses were across the board, with industrials and financials holding up best while health care and consumer staples lagged.

Hong Kong suffered too, with its big tech firms leading the way down. The Hang Seng lost 1.7 percent. Tencent fell 4.1 percent, Baidu lost 5.5 percent, and Alibaba was off 4.8 percent.

South Korea fell for an eighth consecutive day, with the KOSPI down 0.9 percent. Investors continue to focus on the coronavirus situation in Korea, along with slower growth in China. Big tech and other growth stocks lagged. Separately, Taiwan's benchmark Taiex fell 1.2 percent as Taiwan tracked the selloff in mainland China.

Japanese markets ended moderately weaker. The Nikkei declined 0.4 percent and the broader Topix lost 0.5 percent. Risk appetite was hurt by coronavirus worries and ahead of the Japanese government announcement late on Tuesday that anti-virus restrictions would be extended to wider regions. Most sectors declined, with air transportation and iron & steel worst, along with technology and banks. Shipping and warehouse sectors held up best.

Negative Covid-19 news and fallout from Chinese weakness hurt Australian markets, with the All Ordinaries index down 1.0 percent. Reopening plays suffered most, including travel stocks, plus miners and financials. Health care, consumer staples, and telecom held up best.

Looking ahead*

In Asia/Pacific, New Zealand PPI, Japanese machinery orders, Japanese merchandise trade, Australian wage prices, and the Reserve Bank of New Zealand policy announcement are due. In Europe, UK CPI, UK PPI, and Eurozone HICP reports are scheduled. In North America, Canadian CPI and FOMC meeting minutes are on tap.

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