Daily market review

United States

Equities dropped in a risk-off move spurred by rising bond yields with megacaps and growth stocks leading a selloff that spread to the rest of the market. The Dow Jones industrial average lost 1.6 percent, the S&P 500 fell 2.0 percent, and the NASDAQ dropped 2.8 percent.

Investors have been surprised by the speed of the rise in yields, with the US 10-year note up about 20 basis points over the last week as a string of Federal Reserve officials appeared to signal tapering of asset purchases starting in November. Inflation worries were fueled by surging prices for oil and natural gas over the last several days, but the energy complex fell back in the US hours Tuesday in response to the equity market retreat.

Surprisingly weak US consumer confidence figures contributed to the risk-off mood, along with an unexpected drop in the Richmond Fed manufacturing index. The fall in consumer confidence suggests a possible slowing in consumption heading into year end, which hit housing stocks including Lennar, the homebuilder, down 3.3 percent, and other consumer discretionary stocks as well. Concern about China's energy crunch and an attendant slowdown in Asian growth added to negative sentiment.

Among megacaps, Microsoft was a notable loser, down 3.6 percent, Apple was off 2.4 percent, and Facebook fell 3.7 percent. On the positive side, financials outperformed, though banks were mixed on the uptick in yields.

Among companies in focus, Ford rose 1.1 percent after announcing huge investments in electric vehicles. United Natural Foods soared 24 percent after posting an earnings beat. On the downside, Synnex, the IT services provider, fell 6.7 percent after a revenues miss and a warning on supply chain trouble. Applied Materials, the big chipmaker, lost 6.9 percent after an analyst downgrade, and AMD, another semiconductor giant, dropped 6.1 percent with investors eyeing its exposure to cryptocurrency mining.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 87 cents to US$78.53 while spot gold fell US$16.54 to US$1,733.53. The US dollar rose vs. major currencies. The US Treasury 30-year bond yield rose 9 basis points to 2.09 percent and the 10-year note yield rose 6 basis points to 1.54 percent.


Stocks dropped on risk-off sentiment spurred by rising energy prices, higher bond yields, and the prospect of tighter monetary policy. The Europe-wide STOXX 600 dropped 2.2 percent, the German DAX fell 2.1 percent, the French CAC lost 2.2 percent, and the UK FTSE 100 slipped 0.5 percent.

Investors focused on comments from Bank of England Governor Andrew Bailey, who hinted at an actual UK interest rate rise next year, although he warned against overreacting to short-term supply shocks. Bailey's comments follow a run of comments from Fed officials signaling tapering in November. On the other hand, European Central Bank President Christine Lagarde sounded a more dovish note as she stuck to the theme of transitory inflation.

Among sectors, worst were technology, industrial goods & services, construction & materials, financial services, and travel & leisure. Holding up best were oil & gas, as oil prices rose again, and real estate.

Technology stocks and other highly-valued sectors reacted poorly to rising bond yields and the negative impetus from losses in US megacaps. Industrials and construction stocks were hurt by concern over China's slowdown in the face of electricity shortages and the China Evergrande affair. On the positive side, energy stocks extended their recent gains as oil prices continued their recent rally with Brent crude approaching US$80 a barrel.

Asia Pacific

Asian equities were mixed with Chinese markets better on pledges of Chinese policy support while other markets lagged on lack of clarity in the Evergrande situation and the likely hit to growth from China's energy crunch.

China's CSI 300 firmed 0.1 percent and the Shanghai composite rose 0.5 percent. Sentiment was bolstered by the People's Bank of China's promise to ensure a "healthy property market" and protect consumers from the Evergrande collapse, and by another aggressive injection of reserves from the PBOC. Among mainland shares, energy, utilities, and financials fared best while most other sectors declined.

Hong Kong topped the region with the Hang Seng up 1.2 percent. Oil & gas and properties stocks outperformed, including China Evergrande, up 4.7 percent. Meanwhile, Taiwan's Taiex index slipped 0.8 percent and South Korea's KOSPI dropped by 1.1 percent on concern over China's power crunch, with semiconductor makers leading the selloff.

Overnight weakness in tech stocks undercut Japanese equities though losses were limited by positive sentiment following reports the government would lift the Covid-19 state of emergency on Thursday. The Nikkei 225 index eased 0.2 percent and the broader Topix was off 0.3 percent. Among sectors, reopening plays got a boost, including travel & leisure. Other gainers included miners, textiles & apparel, and metals. On the downside, marine transportation dropped along with precision instruments and pharma.

A selloff in commodities weighed on Australian equities, with the All Ordinaries index down 1.4 percent. Fear of China's power crunch hit miners, who count heavily on Chinese industrial demand. Tech stocks tracked Wall Street tech stocks lower. On the positive side, energy stocks managed gains as oil prices continued their run higher.

Looking ahead*

In Asia/Pacific, no major reports are due for release. In Europe, Italian PPI, UK M4 money supply, and Eurozone EC Economic Sentiment reports are scheduled. In North America, Canadian industrial product price index and US pending home sales reports are on tap.

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Global Bond Market Recap

Global Currency Recap

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