Daily market review

US jumps after Powell speaks; Europe and Asia up on easing Covid in China

United States

Monday's news of easing Covid case counts in Shanghai continued to boost shares on Tuesday, gains that accelerated into the US close after Federal Reserve Chair Jerome Powell spoke. The Dow rose 1.3 percent, the S&P rose 2.0 percent, and the NASDAQ gained 2.8 percent.

It's what Jerome Powell didn't say that helped the market, that is he didn't bring up the possibility of a 75-basis-point rate hike and stressed instead the need to bring down inflation without disrupting the health of the labor market and to bring the economy to a soft landing. Powell said there was broad agreement at May's policy meeting to lift short-term rates by 50 basis points at each of the next two meetings.

Twitter rose 2.5 percent amid uncertainty over Elon Musk's $44 billion buyout offer. Musk is seeking greater diligence on the percentage of fake accounts on the platform. Tesla shares, which had dropped sharply following Musk's bid for Twitter, rose 5.1 percent.

Citigroup rose 7.5 percent on news that Berkshire Hathaway had taken a nearly $3 billion stake in the money center bank, while Home Depot rose 1.7 percent on better-than-expected results. Walmart fell 11.4 percent after posting disappointing first-quarter results and cutting full-year profit guidance due to rising costs.

Retail sales, which in the US are reported in dollars, rose 0.9 percent in April, slightly more than expected yet reflecting price effects as year-over-year growth of 8.2 percent is actually 1 tenth below April's CPI rate of 8.3 percent. This gets second-quarter consumer spending off to a slow start. By contrast, industrial production, which tracks volumes and offers a gauge in real terms, also beat expectations with a very strong 1.1 percent April rise with annual growth at 6.4 percent. Oil and gas, aircraft, and especially automotive products (up 3.3 percent on the month and 14.6 percent on the year) are leading the way.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$3.06 to US$111.18 while spot gold dropped US$8.24 to US$1,815.90. The US dollar fell sharply vs. major currencies. Demand for Treasuries fell as demand for stocks rose. The US 30-year bond yield rose 8 basis points to 3.18 percent while the 10-year note yield gained 11 basis points to 2.99 percent.

Europe

Talk of upsized rate hikes is building in Europe after Klaas Knot, an ECB hawk, said he favors a 1/4 point move but would consider a 1/2 point as well. Otherwise, Tuesday's news from Europe, especially talk of easing Chinese health restrictions, was favorable for shares as the DAX rose 1.6 percent, the CAC 1.3 percent and the FTSE 0.7 percent.

Labour data from the UK were surprisingly robust, led by a sizable 56,900 decline in the country's claimant count to pull the unemployment rate by this measure down 2 tenths to 4.1 percent. The unemployment rate by the ILO measure fell 1 tenth to 3.7 percent to match a 48-year low. These results point to another Bank of England rate hike ahead especially given a giant 1.6 percentage point surge in average annual earnings to 7.0 percent.

High oil prices made for a record budget deficit in Italy of €0.92 billion in March though in a more favorable result, consumer inflation in April was revised lower to a monthly decline of 0.1 percent that pulled the revised annual rate down 2 tenths to 6.0 percent. This compares with March's 6.5 percent rate. Italy's benchmark stock index MIB rose 1.1 percent.

In Spain, the Ibex rose 1.5 percent while CaixaBank rose 5.2 percent after raising guidance citing the benefit of higher interest rates.

Asia Pacific

Easing restrictions in China, or at least expectations of such, drove Asian shares higher Tuesday including the Shanghai composite, which rose 0.7 percent.

Japanese shares also moved higher on China Covid hopes, with the Nikkei rising 0.4 percent for a third straight gain. Video-game maker Konami rose 5.7 percent with oil company Inpex up 5.6 percent.

India's Sensex surged 2.5 percent to 54,318, the best gain in three months that follows, however, nearly two straight months of declines from the 60,600 level. Bharti Airtel rose 1.8 percent after the telecom's quarterly results beat expectations, but it was an initial public offering from Life Insurance Corp that made the biggest headlines, with its shares slumping 8 percent on its first day of trading.

Economic news in Asia was light but did include trade data from Singapore where non-oil export growth slowed 1.3 percentage points to a still respectable 6.4 percent in April. Non-electronic exports slowed 2.2 points to 4.6 percent though electronic exports rose 1.2 points to 12.8 percent. Sea Ltd, up 13.2 percent, posted better-than-expected gaming revenue in the first quarter. Singapore's Strait Times index rose 0.3 percent on the day.

Looking ahead*

Tuesday's data start with the first estimate for first-quarter GDP in Japan followed by China's house price index and, in an important report for monetary policy in Australia, the country's wage price index. The UK, where the rising cost of living is making major headlines, will post first estimates for both consumer and producer prices in April while the Eurozone will post a second estimate for April harmonised consumer prices. Canada will report its first look at April consumer prices while the US will post housing starts and permits where rising mortgage rates are expected to bite.

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