Daily market review

United States

Risk appetite recovered somewhat to help US equities edge up from early lows to end flat to better Thursday on mixed corporate earnings results and developing news on the Chinese coronavirus. Markets recovered in the afternoon on reports that a pharma company, Gilead, was assessing whether its Ebola medicine could address the Chinese virus. The Dow industrials eased 0.1 percent, the S&P 500 rose 0.1 percent, and the NASDAQ gained 0.2 percent.

China reported hundreds of confirmed cases of the disease, and 18 deaths. It restricted travel in seven cities, and cancelled public events in Beijing and elsewhere. The outbreak occurred at a time when Chinese travel in numbers to be with their families for the Chinese New Year.

Among sectors, industrials outperformed, led by transports, on positive earnings from Jetblue, which rose 6.5 percent, and Union Pacific, which rose 3.4 percent. Tech stocks also rose, led by hardware companies and chipmakers. On the downside, financials lagged, led by big banks and insurance companies, including Travelers, which fell 5.1 percent. Materials, consumer staples, and energy shares also fell.

Among companies in the news, Procter & Gamble, a Dow component, eased 0.5 percent as markets focused on a revenue miss, despite better than expected profits. Comcast fell 3.8 percent after the telecommunications conglomerate reported an earnings miss. Travelers, another Dow component, fell after the company warned about worrisome claims and other liabilities. Texas Instruments, the chipmaker, rose 0.7 percent on better than expected earnings and revenues.

In US economic data, the index of leading economic indicators fell a sharp 0.3 percent in December to come in at the very bottom of Econoday's consensus range. Yet the decline largely reflected a jump in December jobless claims, which have since improved, and also building permits where the underlying trend is decidedly strong. Meanwhile, initial jobless claims in the January 18 week came in at a very favorable 211,000 level that pulled the 4-week average down 3,250 to a 4-month low of 213,250. The January 18 week was the survey period for the monthly employment report and a comparison with the survey period of the December employment report shows a very sharp 24,000 decline at the headline level with the 4-week average down 12,500, a no less substantial decrease.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$1.40 to US$62.01, while gold rose US$4.00 to US$1,562.00. The US dollar was mixed against major currencies. The US Treasury 30-year bond yield fell 4 basis points to 2.18 percent while the 10-year note yield fell 4 basis points to 1.73 percent.


Worries about the Chinese coronavirus hurt European equities again Thursday. The Europe-wide STOXX 600 fell 0.7 percent, the German DAX dropped 0.9 percent, the French CAC declined 0.7 percent, and the UK FTSE-100 fell 0.9 percent.

Outperformers included utilities, real estate, and food & beverage, while resources, autos, travel & leisure, and financial services suffered the most. Companies with heavy exposure to China were hit hardest on worries about the economic fallout from the spreading virus. Miners, airlines, and luxury goods makers led the selloff. Auto stocks suffered again in the wake of President Trump's renewed threat to impose tariffs on European autos.

In economic news, the ECB left policy on hold, as expected. Accordingly, QE remained targeted at €20 billion/month with no fixed end date while the refi, deposit and marginal lending rates were held at 0.00 percent, minus 0.50 percent and 0.25 percent respectively. In data, Eurozone consumer sentiment was expected to improve but didn't. January's reading, holding at December's minus 8.1, remains at a 2-1/2 year low.

Asia Pacific

Major Asian markets sold off Thursday, in some cases heavily, with the impact of a busy data calendar on investor sentiment mixed with concerns about the coronavirus outbreak. These concerns escalated after Chinese authorities announced an increase in the number of people affected and suspended public transportation in and around Wuhan, the source of the outbreak, just a few days before the start of lunar new year holidays.

The Shanghai Composite index and Hong Kong's Hang Seng index were the worst performers, down 2.8 percent and 1.5 percent respectively, while Japan's Nikkei and Topix indices closed down 1.0 percent and 0.8 percent respectively after weaker-than-expected trade data. Australia's All Ordinaries index closed down 0.7 percent on the day after labour market data showed a small fall in the unemployment rate.

Japan's merchandise trade deficit widened from a revised ¥85.2 billion in November to ¥152.5 billion in December, in line with the consensus forecast for a deficit of ¥150 billion. Exports fell 6.3 percent on the year in December after dropping 7.9 percent in November, greater than the consensus forecast for a drop of 4.2 percent, and in contrast with previously released Chinese and Singaporean data which showed year-on-year growth in exports in December. Also published today, Japan's All Industry Index advanced 0.9 percent on the month in November, rebounding from a revised drop of 4.8 percent in October and broadly in line with previously released PMI survey data.

Australia's labour market saw an increase of 28,900 in the number of employed in December, down from an increase of 39,900 in November, but well above the consensus forecast for an increase of 15,000. The unemployment rate eased from 5.2 percent in November to 5.1 percent in December, just below the consensus forecast of 5.2 percent, while the participation rate was steady at 66.0 percent. With the unemployment rate still above 5.0 percent in December, today's data will likely reinforce the view of officials at the Reserve Bank of Australia that there remains significant spare capacity in the labour market and likely support the chances that a further rate reduction will be considered in coming months.

Singapore's headline consumer price index advanced 0.8 percent on the year in December, up from 0.6 percent in November, while the Monetary Authority of Singapore's preferred measure of core inflation, which excludes the cost of accommodation and private road transport, rose 0.7 percent on the year, up from 0.6 percent previously. In annual terms, headline inflation picked up from 0.4 percent in 2019 to 0.6 percent in 2019 while core inflation slowed from 1.7 percent to 1.0 percent. MAS officials expect both headline and core inflation to average between 0.5 percent and 1.5 percent in 2020.

Looking ahead*

On Friday in Asia/Pacific, New Zealand CPI, Japanese CPI, Japanese PMI composite and Japanese PMI manufacturing flashes, Japanese BoJ MPB minutes, and Singapore industrial production figures are due. In Europe, the following are scheduled: French PMI composite flash, German PMI composite flash, Eurozone PMI composite flash, and UK CIPS/PMI composite flash. In North America, Canadian retail sales and US PMI composite flash figures will be released.

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