Daily market review

United States

Equities bounced back Monday after an opening selloff with dip-buying and short covering centered in growth stocks while value/cyclicals lagged. Equities weakened early as markets focused on expectations for faster policy normalization from Western central banks, and wider Chinese anti-Covid lockdowns. The Dow Jones industrial average rose 0.7 percent, the S&P 500 gained 0.6 percent while the NASDAQ rose 1.3 percent.

Communications services, technology, and consumer discretionary stocks led the recovery from early lows with a boost from a retreat in US market interest rates and lower oil prices, and stocks appeared oversold after three weeks of declines. On the downside, expectations for weaker Chinese demand and more supply chain disruption hit cyclicals, especially energy stocks, materials, plus industrials. Investors expect more Chinese lockdowns as Covid cases rise in Beijing and Shanghai. Banks and other financials retreated with declining interest rates.

Among companies in focus, Twitter rose 5.7 percent as the company confirmed it will be taken private by an entity owned by Elon Musk. Tesla fell 0.7 percent as Musk is expected to use his auto company shares to collateralize takeover loans.

Among other companies in the news, Deere, the machinery company, fell 4.5 percent after a downgrade at Bank of America, and Verizon lost 3.1 percent after a downgrade at Goldman. On the positive side, AMD rose 2.9 percent along with other chipmakers after an analyst upgrade. Penn National Gaming rose 4.9 percent after an upgrade.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$3.31 to US$102.91 while spot gold dipped US$35.54 to US$1,898.27. The US dollar rose vs. most major currencies but was weaker vs. the yen. The US Treasury 30-year bond yield declined 5 basis points at 2.90 percent and the 10-year note yield lost 6 basis points to 2.83 percent.


Risk assets sold off again Monday as investors priced in more aggressive rate increases from the Federal Reserve and the European Central Bank, and as energy and basic resources sold off on concern over Covid lockdowns in China. The Europe-wide STOXX lost 1.8 percent, the German DAX fell 1.5 percent, the French CAC fell 2.0 percent, and UK FTSE 100 was off 1.9 percent.

Basic resources, energy, and luxury goods got whacked as mass Covid testing in Beijing spurred worries over widening lockdowns and economic fallout in China. Holding up best were defensive plays including utilities and telecom.

In macro news, risk appetite was hurt by a Financial Times report that Russian President Vladimir Putin was not interested in diplomatic talks to end the Ukraine war, and would pursue a land-grab approach in Ukraine. Another negative: a Reuters report that ECB officials have upgraded their economic outlook and want to end asset purchases as soon as July. On the positive side, French President Emmanuel Macron won reelection in Sunday's run-off vote, and the Ifo Institute reported an unexpected rise in German business sentiment.

French stocks lagged the region as luxury goods makers were among the worst hit by concern over the impact of China's Covid policies. Luxury conglomerates dropped, with LVMH down 3.8 percent, and Kering off 4.4 percent.

Asia Pacific

Chinese equities melted down to lead regional markets lower Monday as Covid cases in Beijing raised concern about a significant economic slowdown as China sticks to its zero-Covid policy. Markets also reacted badly to more talk of aggressive Federal Reserve rate increases, and attendant declines in the yen and Chinese yuan.

Chinese markets saw heavy selling across the board after the city of Beijing announced five days of mandatory testing and placed some districts on lockdown. Shanghai, meanwhile, announced rising Covid deaths, and was struggling to contain the pandemic, but its numbers remained low by global standards. China's CSI 300 dropped 4.9 percent, the Shanghai index lost 5.1 percent, and Hong Kong's Hang Seng index fell 3.7 percent, with technology and materials stocks leading the decline. Energy and other commodity stocks were hit by falling commodities prices as markets expect slowing Chinese demand.

Spillover from US market weakness on Fed policy worries hit Japanese equities along with fallout from China's selloff. Japan's Nikkei 225 fell 1.9 percent and the TOPIX was down 1.5 percent. Losses were nearly across the board with cyclical/value stocks leading the decline.

Tech stock losses hit South Korean equities with the KOSPI fell 1.8 percent and the Taiwan Taiex down 2.4 percent. The BSE Sensex fell 1.1 percent with metals, energy, and tech stocks off the most.

Australian equities were on holiday.

Looking ahead*

In Asia/Pacific, South Korean GDP, Singapore industrial production, and Japanese unemployment figures are due. In Europe, UK public sector finance and Swiss merchandise trade reports are on the schedule. In North America, US durable goods orders, US Case Shiller home prices, US FHFA house prices, US consumer confidence, US new home sales, US Richmond Fed manufacturing reports are on tap.

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