Daily market review

US, Europe rise in risk-on move; Asia mixed as China steadies

United States

Risk appetite returned Wednesday as investors were hopeful about prospects for China Evergrande, the troubled Chinese property developer. Major equity indexes rose further after the Federal Reserve policy statement at midafternoon, on relief that it matched expectations. The Dow Jones industrial average, the S&P 500 and the NASDAQ all rose 1.0 percent.

Headlines overnight suggesting Evergrande had reached agreement with domestic bondholders and news that Chinese monetary authorities added liquidity aggressively to financial markets spurred a global relief rally, with value/cyclical stocks leading. One US-based analyst called the risk-on response "buy first, think later," as the situation is unresolved, and there were no details on Evergrande debt payments or what would happen with international dollar-denominated debt coming due Thursday. More bullish analysts suggested the Chinese government was working to arrange a soft restructuring to limit financial and economic damage.

Markets were not fazed by the Fed policy announcement at midafternoon, as it generally matched expectations, and pointed to a slow withdrawal of stimulus. The FOMC said it may slow the pace of its asset purchases soon if the economy progresses as expected. Fed Chair Jerome Powell told reporters the tests for progress on the central bank's inflation and employment goals were "all but met," and that the decision to taper seemed likely at the next policy meeting in November, assuming the September employment report is "decent."

In US markets, energy stocks were the day's best performer as oil prices rose again in the risk-on move. Materials outperformed on a rally in industrial metals and chemicals. Financials advanced with banks leading. Industrials got a lift from airlines on hopes for a travel recovery.

On the downside, weakness in Facebook, down 4.0 percent, depressed communications services, and health care lagged on a retreat in Biogen, down 2.1 percent.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.48 to US$76.02 while spot gold fell US$6.82 to US$1,1768.35. The US dollar was mixed vs. major currencies. The US Treasury 30-year bond yield was down 3 basis points at 1.82 percent and the 10-year note yield declined 1 basis point to 1.31 percent.

Europe

Risk-on sentiment lifted equities for a second day Wednesday with cyclicals leading as investors reacted favorably to China Evergrande news and rising commodities prices. The Europe-wide STOXX 600 and the German DAX both rose 1.0 percent, the French CAC gained 1.3 percent, and the UK FTSE-100 was up 1.5 percent.

Reports suggesting China Evergrande had reached an initial agreement with domestic bondholders, and an aggressive reserve injection from the People's Bank of China soothed nerves over the Evergrande situation. An ensuing uptick in commodities and oil prices boosted basic resources and energy stocks to help UK stocks outperform.

Among companies in focus, Rio Tinto, the mega-miner, rose 2.9 percent on rising iron ore prices and an analyst upgrade. Norsk Hydro, the Norwegian aluminum miner, rose 3.1 percent as aluminum prices rallied. Royal Dutch Shell rose 1.9 percent as oil prices advanced.

Banks outperformed, paced by Svenska Handelsbanken, up 1.4 percent, after the Swedish bank raised its dividend. Gambling companies were in the news, with Entain, up 8.2 percent, rallying for a second day after the UK gaming company received a takeover bid from DraftKings.

In economic news, EU consumer confidence surprisingly improved this month according to the latest survey from the EU Commission. At minus 4.0, September's flash reading was up 1.3 points versus August's final mark to record its first increase since June. This was also a 3-month high and well above its long-run average (minus 11.0).

Asia Pacific

Asian equities were mixed with Chinese markets relatively stable on their return from two days of holiday. Markets were supported by a filing from China Evergrande that suggested it had reached a deal with domestic bond holders over an upcoming yuan debt payment. Activity was cautious ahead of the Fed policy announcement.

China's CSI 300 fell 0.7 percent and the Shanghai composite rose 0.4 percent, while the Hong Kong market was on holiday. Chinese stocks were down about 1 percent in early going but got a lift from a big injection of reserves from the People's Bank of China that calmed nerves about the official response to the China Evergrande situation. Investors are watching closely to see how Evergrande handles other pending debt payments, including a large dollar debt payment due Thursday. Most investors see the Chinese authorities limiting fallout from the collapse of the huge property developer.

Japan's markets retreated on risk aversion linked to Chinese market losses but activity was light amid caution ahead of the Fed announcement and uncertainty over the Evergrande situation. The Nikkei 225 declined 0.7 percent and the wider Topix index fell 1.0 percent. Most sectors were down, led by machinery makers and trading houses. Only mining, marine transportation and real estate saw gains. The Bank of Japan's announcement that there was no change to its easing stance matched expectations.

Australian markets recovered early losses to end slightly higher with support from a late rebound in Chinese markets and a recovery in miners. Australia's All Ordinaries firmed 0.4 percent. Among sectors, iron miners led gains, along with liquefied natural gas producers. Lagging were media stocks, travel, and financials.

Indian markets were mixed, with gains in tech and media stocks offsetting losses in banking. The BSE Sensex and the Nifty both declined 0.1 percent. The day's big winner was Zee Entertainment, up 30 percent, after accepting a takeover from Sony.

In the day's economic news, the BOJ said it is maintaining its current stimulative policy, as expected, to support recovery from the pandemic-caused slump and continue its eight-year campaign to guide low inflation toward stable 2%. The central bank largely left its view on Japan's resilient economic pickup amid the pandemic unchanged from its assessment issued after the last policy meeting in July.

Looking ahead*

In Asia/Pacific, the Singapore CPI report is due. In Europe, the following are scheduled: French business climate indicator, PMI composite flash reports from France, Germany, Eurozone, and UK, plus the Swiss monetary policy assessment, and the Bank of England policy announcement and minutes. In North America, Canadian retail sales, US jobless claims, Chicago Fed National Activity Index, US PMI composite flash, US leading indicators, and Kansas City Fed manufacturing index are all on tap.

Global Stock Market Recap

Global Bond Market Recap

Global Currency Recap

Commodities and currencies

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