Daily market review

United States

Equities snapped back Friday with cyclicals leading on dip-buying and good news on a Covid-19 medication, plus positive US economic data. The Dow Jones industrial average rose 1.4 percent, the S&P 500 gained 1.2 percent and the NASDAQ gained 0.8 percent.

News that Merck, up 8.4 percent, said its anti-viral pill was effective against Covid-19 gave reopening plays a lift. Other big drug makers, including Pfizer and Roche, reportedly have similar medications in late-stage tests.

Cyclicals/value stocks also got a boost from a better-than-expected US purchasing managers' report. Despite the better showing Friday, major equity indexes showed big declines for the week in response to higher bond yields, stagflation worries, and expectations for less supportive US fiscal and monetary policy.

Among sectors, energy led the day's winners with supermajors strongest. Megacap internet stocks lifted communications services with help from dip-buying and the day's reprieve in rising market interest rates, and strength in media names. Financials and materials also outperformed, and airlines led industrials higher, with airlines up on positive analyst commentary and reaction to the anti-Covid medication news.

Among companies in focus, Southwest Air rose 5.7 percent and American Airlines rose 5.5 percent. Travel and entertainment companies including Hilton Worldwide, the hotel chain, up 4.6 percent, and Live Nation, the concert promoter, rose 8.3 percent, on reopening hopes.

In US economic news, the manufacturing sector index compiled by the Institute for Supply Management jumped to 61.1 in September from 59.9 in August, coming in stronger than the consensus forecast for 59.8. Separately, the consumer sentiment index received an upward revision to 72.8 in September, putting it 2.5 points above the 70.3 in August after it plunged from 81.2 in July. The reading beat market expectations, but not enough to lift the worry that lower confidence could limit consumer spending.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 57 cents to US$79.09 while spot gold rose US$4.17 to US$1,760.16. The US dollar fell vs. most major currencies. The US Treasury 30-year bond yield declined 3 basis points to 2.04 percent and the 10-year note yield slipped by 2 basis points to 1.47 percent.


Equities slipped on surging power prices in Europe and more warnings from companies on supply chain disruptions. The Europe-wide STOXX 600 declined 0.4 percent, the German DAX slipped by 0.7 percent, the French CAC was flat and the UK FTSE 100 dropped 0.8 percent.

Investors reacted badly to record-high natural gas and electricity prices, and reports that state-owned Chinese importers were bidding aggressively for scarce global fuel supplies to address China's own power crunch. Another ugly Eurozone inflation report played on nerves over rising inflation and added to concern about stagflation.

Among sectors, basic resources and tech stocks lagged along with chemicals, industrial, banks, and food & beverage. Holding up best were travel & leisure, real estate, media, utilities, and real estate. Among companies, AO World, the UK online household goods retailer, plunged 24 percent after blaming its revenue miss on labor and product shortages. Iomart Group, the UK cloud computing company, dropped 18 percent after downgrading its guidance.

In economic news, Eurozone inflation accelerated in September. A flash 3.4 percent annual rate was up from August's final 3.0 percent, on the firm side of the market consensus and the highest since September 2008.

Asia Pacific

Asian markets extended overnight declines as the risk-off mood continued and investors focused on negatives including inflation fears, higher bond yields and China's slowdown.

With Hong Kong and mainland Chinese markets on holiday, Taiwan's Taiex index dropped 2.2 percent and South Korea's KOSPI lost 1.6 percent. Investors are reacting to the flow of worrisome news affecting China's growth prospects, including weak economic data this week, power shortages and fallout from the China Evergrande affair. On the positive side are expectations for more policy support from the People's Bank of China.

Japanese equities took their cue from a big drop Thursday on Wall Street, with the Nikkei 225 index down 2.3 percent and the broader Topix down 2.2 percent. Risk appetite suffered from concern about growth in the US after an unexpected uptick in jobless claims and over uncertain prospects for US fiscal measures. Soft Chinese data and focus on China's power crunch weighed heavily on Japanese markets.

Australian equities dropped with the global risk-off mood as the All Ordinaries index lost 1.9 percent. All sectors showed losses, with financials off the most. Materials were hit by weakness in industrial metals amid Chinese growth worries, though precious metals rose. Declines in building materials hurt industrials. Biotechs led the selloff in health care stocks. Retail and gaming depressed consumer discretionary though travel stocks rallied on news of Australia's plans to reopen borders to fully vaccinated people.

In economic data, the Bank of Japan's Tankan diffusion index showing sentiment among major manufacturers rose to plus 18 in September from plus 14 in June, plus 5 in March and minus 10 in December. The September reading topped the median economist forecast of plus 13. The Tankan index measuring sentiment among major non-manufacturers edged up to plus 2 in September from plus 1 in June, which was the first positive figure in five quarters. The result beat the median economist forecast of zero. However, many industries were cautious about their short-term outlook amid supply chain constraints and rising materials costs.

Global Stock Market Recap

Global Bond Market Recap

Global Currency Recap

Commodities and currencies

Looking forward