Daily market review

United States

Equities gave up early gains to end weaker after running into selling pressure on a mixed set of earnings and underlying bearish sentiment flowing from a newly hawkish Federal Reserve. The Dow Jones industrial average was flat, the S&P 500 declined 0.5 percent, and the NASDAQ fell 1.4 percent.

Surprisingly strong US GDP data, at 6.9 percent annualized growth in the fourth quarter, gave markets an early lift with the major indexes up 1-2 percent, but investors sold into the strength, as has been the recent pattern. Value/cyclicals outperformed as the market continued to adjust to a much tougher anti-inflation stance from the Fed, and what some observers described as a paradigm shift away from years of market-supportive monetary policy.

Rate hike worries plus very disappointing guidance from chipmakers weighed on technology shares, with Intel down 7.0 percent, and Teradyne plunging 22 percent. Homebuilders, restaurants, and travel & leisure lagged.

Consumer discretionary took a heavy blow from Tesla, down 12 percent, after the electric vehicle maker warned of supply chain trouble and said it won't introduce new models this year. Rivian dropped 11 percent as it got caught in Tesla's downdraft, along with other trendy EV stocks.

On the positive side, energy stocks held up better amid ongoing rotation into value/cyclicals, with oil supermajors leading. ExxonMobil rose 1.3 percent. Containers & packaging outperformed after good earnings news from Packaging Corp of America, up 7.6 percent. FANMAG stocks drew support from Netflix, up 7.5 percent on news Pershing Square had taken a big position in the streaming leader.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil declined 5 cents to US$89.52 while spot gold fell US$22.15 to US$1,795.19. The US dollar rose sharply vs. most major currencies, as has been its recent trend. Yields on the US Treasury 30-year bond fell 8 basis points to 2.09 percent, and the 10-year note fell 6 basis points at 1.81 percent, but yields rose at the short end.


European equities recovered from early lows with value/cyclicals leading. The Europe-wide STOXX 600 rose 0.7 percent, the German DAX firmed 0.4 percent, the French CAC gained 0.6 percent, and the UK FTSE 100 was up 1.1 percent. UK stocks outperformed on strength in basic resources.

European markets are seen as benefiting from the shift out of US assets and into value sectors as markets adjust to a more hawkish Federal Reserve stance. Banks were among the day's best performers on rising bond yields. Deutsche Bank rose 1.2 percent after a surprisingly strong earnings report, and HSBC rose 3.4 percent after an analyst upgrade.

Other strong sectors included basic resources, with BHP up 1.9 percent, and Anglo American up 1.1 percent after its production update. Autos and parts outperformed with Daimler up 1.2 percent. Health care, utilities, and telecom also outperformed. Deutsche Telekom gained 3.1 percent on reports that it may merge its mobile tower business with its competitors.

On the downside, technology lagged again, with focus on SAP, down 5.6 percent after disappointing quarterly results. Travel & leisure stocks sagged with airlines giving back some of their recent gains.

Asia Pacific

Asia/Pacific equities tanked as investors reacted badly to the hawkish tone of Federal Reserve Chair Jerome Powell's remarks, including his comment that there is plenty of room to raise rates without harming the economy, and the view that the Fed will move rapidly to reduce the size of its balance sheet.

Tech-heavy markets, including Japan, were hit hardest, but losses were across the board. The Nikkei 225 dropped by 3.1 percent and the Topix by 2.6 percent. Big tech stocks and automakers were among the biggest decliners. Rising crude oil prices, higher JGB yields, and more negative domestic Covid news added to negative sentiment. Softbank dropped 9.0 percent, Sony was off 6.7 percent, and Toyota declined 2.6 percent. South Korea's KOSPI plunged 3.5 percent with tech stocks leading the selloff.

Mainland Chinese equities sank with growth stocks lagging in a broad risk-off move. China's CSI 300 index lost 2.0 percent and the Shanghai composite declined 1.8 percent. Among sectors, tech and industrials lagged. Hong Kong saw losses across the board with the Hang Seng index off 2.0 percent. China Evergrande fell 3.4 percent as Chinese authorities are considering breaking up the company and selling its property assets, according to a Bloomberg report.

Australia's All Ordinaries fell 1.8 percent with health care and technology hit hardest on fallout from the Powell comments. Consumer staples, consumer discretionary, and industrials lagged the most, with materials and energy holding up best.

Looking ahead*

In Asia/Pacific, South Korean industrial production, South Korean retail sales, Taiwanese PMI manufacturing, Hong Kong GDP, and Australian PPI reports are scheduled for release. In Europe, French consumer manufactured goods consumption, French GDP flash, French PPI, Swiss KOF Swiss leading indicator, German GDP flash, Eurozone M3 money supply, Italian consumer and business confidence, Eurozone EC economic sentiment, and Italian PPI reports are due. In North America, US personal income and spending, US employment cost index, and US consumer sentiment reports are due.

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