Daily market review

US bounces back; Europe weakens; Asia off on China news

United States

Equities rebounded with value/cyclical stocks outperforming as dip-buying emerged after recent weakness. The Dow Jones industrial average was up 0.7 percent, the S&P 500 rose 0.9 percent and the NASDAQ gained 0.8 percent.

Energy stocks were notable winners as crude oil prices extended their recent gains above $70 a barrel after US crude oil inventories dropped in the latest week. Financials, materials, and industrials also outperformed. Alcoa was a notable gainer, up 7.7 percent, after an analyst upgrade.

Megacap growth stocks joined the rally in value stocks as the day progressed, with Apple recovering from initial declines to end up 0.6 percent. Microsoft rose 1.7 percent after announcing a new share buyback and raising its dividend.

Utilities trailed. Other laggards included communications services and consumer discretionary, with the latter hurt by a selloff in Wynn Resorts, down 6.3 percent on fallout from China's proposed crackdown on casinos in Macau, and weakness in Yum China, down 5.9 percent on a bearish trading update. Starbucks declined 3.6 percent on concern over Chinese lockdowns.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.92 to US$75.51 while spot gold fell US$11.62 to US$1,793.79. The US dollar fell vs. most major currencies. The US Treasury 30-year bond yield rose 1 basis point at 1.86 percent and the 10-year note yield gained 1 basis point to 1.30 percent.

Europe

Growth worries linked to the global pandemic undercut equities Wednesday, along with specific weakness in utilities and retail stocks. The Europe-wide STOXX 600 lost 0.8 percent, the German DAX declined 0.7 percent, the French CAC dropped 1.0 percent, and the UK FTSE-100 eased 0.3 percent.

Utilities were hit as a natural gas shortage in Europe continues to push up power-generating costs, and the sector struggles with the mandated shift to renewable energy sources. Godman Sachs projected still higher electricity prices and power outages would hit many European industries this winter.

Earnings disappointments at clothing sellers H&M, down 3.1 percent, and Inditex, down 1.7 percent, hurt retailers. Luxury goods sellers sold off sharply for a second day on fallout from China's disappointing economic data, including weak retail sales figures. LVMH dropped 4.0 percent and Kering, owner of Gucci brands, lost 4.1 percent. Holding up best were energy, basic resources, and autos & parts.

In economic news, UK consumer prices were surprisingly robust in August. A record 0.7 percent monthly rise beat the market consensus and annual inflation jumped from 2.0 percent to 3.2 percent. This put inflation at its highest since March 2012 and 1.2 percentage points above target.

Asia Pacific

Asian equities markets were mostly lower on more disappointing Chinese economic data and worries about China's latest regulatory crackdown.

A batch of economic reports showed Chinese business activity faded even more than expected in August. Retail sales were the biggest negative surprise with a year-over-year gain of 2.5 percent, well below expectations, down from 8.5 percent in July.

Hong Kong equities took the brunt of the selling, with the Hang Seng index down another 1.8 percent Tuesday to bring its decline to 4 percent over the last five days. Macau casino stocks plunged on expectations China will tighten gambling regulations. Tech giants, health care, and consumer goods and services also sold off sharply. Troubled property developer China Evergrande fell 5.4 percent to extend its recent decline.

Among mainland Chinese indexes, the CSI 300 fell 1.0 percent and the Shanghai composite declined 0.2 percent. Growth stocks lagged value. Among sectors, energy and industrials advanced while consumer discretionary and consumer staples lagged.

South Korean equities managed modest gains with the KOSPI up 0.2 percent as big tech stocks rose despite growth worries linked to rising Covid-19 case counts. Separately, Taiwan tracked other Chinese markets lower with the benchmark Taiex down 0.5 percent.

Japanese markets retreated on profit-taking after recent gains, with a push from Tuesday's Wall Street selloff and losses in Hong Kong tech stocks. Reports that North Korea fired more test missiles off its coast added to market jitters. The Nikkei declined 0.5 percent and the broader Topix dropped 1.1 percent. Most sectors sold off, with real estate, insurance, banks, and metals leading the decline. Only shipping stocks gained.

Australian equities slipped with the All Ordinaries off 0.2 percent. Sentiment was hurt by spillover from Chinese market weakness. On the positive side, recovery hopes got a lift from the flattening trend in new Australian Covid-19 cases and news that Qantas, the airline, would resume overseas flights in December. Among sectors, energy and materials trailed while health care and real estate outperformed.

Looking ahead*

In Asia/Pacific, New Zealand GDP, Japanese merchandise trade, and Australian Labour Force Survey figures are due for release. In Europe, Italian merchandise trade and Eurozone merchandise trade reports are scheduled. In North America, Canadian housing starts, US jobless claims, Philadelphia Fed manufacturing index, US retail sales, US business inventories. And US Treasury international capital reports are on tap.

Global Stock Market Recap

Global Bond Market Recap

Global Currency Recap

Commodities and currencies

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