Daily market review

United States

Equities weakened Tuesday as selling centered in growth stocks overwhelmed the bargain hunting impulse that helped stocks bounce back late Monday. The Dow Jones industrial average declined 0.2 percent, the S&P 500 lost 1.2 percent, and the NASDAQ lagged with a decline of 2.3 percent.

Energy and financials helped value/cyclicals outperform with oil prices rebounding and bond yields edging up ahead of Wednesday's Federal Reserve policy announcement. Chevron advanced by 4.3 percent on higher oil prices; American Express gained 8.9 percent after earnings and revenues beats.

On the downside, losses in communications services, technology, and consumer discretionary stocks weighed as growth stocks remained out of favor as investors price in a more hawkish Fed. Some analysts discussed concerns that the Fed may act too aggressively and the economy would suffer a growth shock. Uncertainty over the Ukraine conflict added to caution.

In the tech sector, Nvidia was a notable decliner, down 4.5 percent on a Bloomberg report that it will abandon plans to buy Arm, the UK chip designer. Microsoft, down 2.7 percent, Meta Platforms, down 2.8 percent, and Amazon, down 3.2 percent, were huge weights on the major averages.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.34 to US$88.02 while spot gold rose US$5.24 to US$1,847.65. The US dollar was mixed vs. major currencies. Yields on the US Treasury 30-year bond rose 2 basis points to 2.13 percent, and the 10-year note rose 2 basis points at 1.78 percent.


European equities recovered some recent losses on bargain hunting after a similar move late Monday in US trading. The Europe-wide STOXX 600 rose 0.7 percent, the German DAX gained 0.8 percent, the French CAC gained 0.7 percent, and the UK FTSE 100 was up 1.0 percent.

Among sectors, best were banks, oil & gas, telecom, basic resources, retail, insurance, chemicals, and health care. Lagging were technology, utilities, food & beverages, construction, and personal & household goods.

Reports suggesting Covid-19 cases are peaking in Europe and the US bolstered market sentiment, along with a positive surprise in Germany's closely-watched Ifo survey of business sentiment. Uncertainty ahead of the Federal Reserve's policy announcement due Wednesday and the Ukraine situation remained big negative overhangs for the market.

In German economic news, Ifo's Business Climate Index rose to 95.7 in January from 94.8 in December. The result topped Econoday's consensus forecast of 94.9. The Ifo expectations index improved to 95.2 in January from 92.7 in December, well above the Econoday consensus of 93.0.

Asia Pacific

Asia/Pacific equities resumed the flight from risk that has consumed global markets with rising Ukraine tensions and a hot Australian inflation reading adding to the rout, along with a surprise tightening move in Singapore.

Weakness centered in growth/tech stocks hit Japanese stocks again as the market prices in a more aggressive set of rate increases from the Federal Reserve and pulls back on growth expectations. The Nikkei 225 and the Topix both fell 1.7 percent. The Bank of Japan's aggressive purchases of Japanese government bonds have been relatively successful in limiting volatility in JGBs, which in turn has cushioned Japanese equities somewhat from the global selloff.

Singapore's Monetary Authority, which manages monetary policy through its exchange rate setting, made the move to fight inflation risks. The Straits Times index fell 1.1 percent.

South Korea's KOSPI lost 2.6 percent and the Taiwan Taiex lost 1.6 percent as sellers remained in command and tech stocks lagged.

Mainland Chinese equities faced renewed selling pressure on the Ukraine worry and bearishness ahead of the Federal Reserve's policy announcement due on Wednesday. China's CSI 300 index dropped 2.3 percent and the Shanghai composite was down 2.6 percent.

Telecom, health care, and tech stocks were hit hard in Hong Kong with the Hang Seng index down 1.7 percent.

A hotter than expected Australian consumer price reading hit Australian equities with the All Ordinaries down 2.6 percent. Australia's consumer price index rose 1.3 percent on the quarter in the fourth quarter, up sharply from an increase of 0.8 percent in the third quarter, with headline inflation accelerating from 3.0 percent to 3.5 percent, well above expectations. The outcome raised expectations for an end to quantitative easing at the Reserve Bank of Australia meeting next week.

Looking ahead*

In Asia/Pacific, New Zealand merchandise trade and Singapore industrial production reports are scheduled for release. In Europe, no major releases are due. In North America, US international trade in goods, US retail inventories, US wholesale inventories, and US new home sales reports are due. The Bank of Canada is scheduled to make its monetary policy announcement and issue its Monetary Policy Report.

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