Daily market review

US falls after inflation data; Europe better on earnings; Asia mixed

United States

Equities seesawed lower Wednesday as risk assets remained out of favor after a disappointing US inflation report. An early bounce faltered as investors sold into a tentative rally. The Dow Jones industrial average lost 1.0 percent, the S&P 500 fell 1.7 percent and the NASDAQ dropped 3.2 percent.

The latest US consumer price index figures undercut the view that inflation is peaking and left expectations for aggressive Federal Reserve rate increases intact. Investors focused on a disappointing core CPI, up 0.6 percent on the month, vs. expectations for a gain of 0.4 percent, though some said it would have been 0.4 percent if not for soaring airfares. US Treasury yields retreated from initial highs as the airfare story gained traction, and yields fell further as equity selling picked up steam as the day progressed.

Growth stocks, especially heavily weighted megacaps, were hit the hardest, along with speculative investments like crypto, as the market resumed its de-risking trend. Consumer discretionary (Amazon, down 3.2 percent) and technology (Apple, down a whopping 5.2 percent, Microsoft, off 3.3 percent) were among the worst sectors. Automakers, airlines, homebuilders, and grocery stores lagged too.

On the positive side, rising oil prices boosted energy stocks and materials perked up on hopes for an easing in China's Covid crisis. Best performers included ConocoPhillips, up1.0 percent, and Chevron, up 1.4 percent.

Among companies in focus, Coinbase plunged 26 percent after the crypto exchange posted disappointing earnings and investors were spooked by language in a Coinbase filing with the Securities and Exchange Commission warning that client crypto assets could be seized in the event of a bankruptcy proceeding. Among other featured losers, Unity Software tanked 37 percent, and Fiverr, the online freelance marketplace, dropped 26 percent on dismal revenue guidance.

On the positive side, Electronic Artists, a video game leader, jumped 8.0 percent on better guidance, and Roblox, another video game firm, rose 3.4 percent despite an earnings miss. H&R Block gained 20 percent on an earnings beat and better guidance.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$4.59 to US$107.03 while spot gold rose US$15.49 to US$1,853.66. The US dollar was mixed vs. major currencies. The US Treasury 30-year bond yield fell 10 basis points at 3.03 percent and the 10-year note yield fell 7 basis points to 2.92 percent.

Europe

Equities advanced Wednesday on company news and better news on China's Covid situation. The Europe-wide STOXX gained 1.7 percent, the French CAC rallied 2.5 percent, the German DAX advanced 2.2 percent and the FTSE 100 was up 1.4 percent.

Sentiment drew support from reports of lower new Covid infection rates in Shanghai and Beijing. Buyers took heart, too, after US markets held up relatively well on the latest US consumer price figures. Among sectors, autos & parts fared best on the China Covid news, with support from Mekonomen, the auto parts firm, up 7.9 percent on a revenues and earnings beat, and from auto parts giant Continental, up 4.1 percent on positive earnings news.

Basic resources got a boost from hopes for better Chinese demand, plus a rally in Thyssenkrupp, the steelmaker and industrial conglomerate, on an earnings beat and raised guidance. UniCredit, the bank, was a big winner, up 11 percent, after announcing a share buyback. On the downside, Roche Holding fell 6.9 percent on bad clinical trial news to weigh on pharma. Retailer Ahold Delhaize fell 5.2 percent on disappointing guidance.

Asia Pacific

Asian equities were mixed again Wednesday, with China outperforming on better Covid news but activity limited before the US CPI report.

China's CSI 300 index rose 1.4 percent and the Shanghai index gained 0.8 percent. Hong Kong's Hang Seng rose 1.0 percent with growth stocks outperforming. Investors reacted favorably to news of a drop in new Covid case counts in Shanghai and Beijing, and to President Biden's comment that he was considering ending some Trump-era tariffs on Chinese goods. The market appeared to look past higher-than-expected Chinese inflation figures showing CPI up 2.1 percent and PPI up 8.0 percent on the year.

Japanese equities were mixed with the Nikkei 225 up 0.2 percent and the TOPIX down 0.6 percent. Among companies in focus, Toyota lost 4.4 percent after a profits warning on rising input costs and supply chain trouble. On the positive side, Nintendo gained 3.3 percent on an earnings beat and announcement of a share split, and Sony rose 2.1 percent on an earnings beat and share buyback.

Taiwan's Taiex eased 0.4 percent. South Korea's KOSPI lost 0.2 percent. Indian equities were under selling pressure with the BSE Sensex down 0.5 percent.

Light dip buying in recently weak sectors helped the Australian All Ordinaries index edge up 0.3 percent. Best were health care, materials, and real estate investment trusts while financials and technology lagged. In economic news, Australian consumer confidence came in weaker than expected, with the Westpac-Melbourne consumer sentiment index at 90.4 in May, down from 95.8 in April, on inflation and interest rate concerns.

Looking ahead*

In Asia/Pacific, the Bank of Japan summary of opinions and Indian CPI and industrial production reports are due. In Europe, UK GDP, UK industrial production, UK merchandise trade, UK monthly GDP, and Swiss producer & import price reports are on the schedule. In North America, US jobless claims and US PPI reports are on tap.

Global Stock Market Recap

Global Bond Market Recap

Global Currency Recap

Commodities and currencies

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