United States
Risk assets returned to favor Wednesday as Iran limited its immediate military response to the US killing of a top Iranian, pushing US equities higher and oil prices lower. The Dow industrials rose 0.6 percent, the S&P 500 gained 0.5 percent, and the NASDAQ was up 0.7 percent.
Markets took comfort after both the US and Iran signaled an apparent cooling in their dispute. President Trump said Iran appeared to be "standing down," though he also vowed more sanctions and said Iran would never be allowed nuclear weapons.
Energy was the only sector lower in a broad rally as oil prices relinquished recent gains. Technology shares led, with software and hardware shares faring best. Communications services outperformed, led by internet companies, including Facebook, up 1.1 percent. Health care and financials saw strong gains. Industrials were depressed by weakness in Boeing, which fell 1.8 percent on news of a crash involving its 737-800 plane.
Among other companies in the news, Dow member Walgreens fell 5.8 percent after reporting an earnings and revenues miss due to costs from its acquisition of Rite Aid. On the positive side, builder Lennar rose 0.9 percent after topping earnings expectations and saying the homebuilding market remains robust.
In US economic news, ADP estimates private payroll growth in Friday's employment report for December at 202,000. Econoday's consensus for ADP's estimate was sizably lower at 157,000. Forecasters, in a consensus tallied before today's ADP report, see private payrolls in Friday's employment report coming in at 150,000 versus 254,000 in November.
These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$2.36 to US$65.80, while gold dropped US$18.20 to US$1,555.00. The US dollar rose against most currencies. The US Treasury 30-year bond yield rose 4 basis points to 2.34 percent while the 10-year note yield rose 4 basis point to 1.86 percent.
Europe
European equities recovered from initial declines to end flat to firmer Wednesday after Iran said it had concluded its retaliation for the US killing a top Iranian. The Europe-wide STOXX 600 rose 0.2 percent, the German DAX gained 0.7 percent, but the French CAC was up 0.3 percent, and the UK FTSE-100 was flat at up 0.01 percent.
News that Iran had fired missiles at US airbases in Iraq knocked risk assets down in the Asian hours and in early Europe, but word from the US and Iran suggesting hostilities would not escalate gave European markets a lift in the afternoon. UK shares lagged, as plunging oil prices depressed energy super-majors Royal Dutch Shell, down 0.7 percent, and BP, off 0.9 percent.
Among sectors in the STOXX 600, travel & leisure, autos & parts, and technology led the gainers, while real estate, food & beverage, and telecom lagged. Airbus Industries, the aerospace leader, rose 0.4 percent after a crash involving a Boeing 737-800, not the troubled 737 Max model that Boeing withdrew from production.
In economic news, German manufacturing orders took a turn for the worse, falling 1.3 percent in November. This put annual growth at minus 6.5 percent, down from 5.7 percent last time. Separately, the EU Commission's gauge of economic sentiment (ESI) made further limited progress in December. At 101.5, the headline index was up 0.3 points versus November and just about on the firm side of market expectations. It was also the highest reading since September and made for the first back-to-back rise since November/December 2017.
Asia Pacific
Major Asian markets sold off Wednesday, with a bare regional data calendar keeping the focus on developments between US and Iran and the associated spikes in gold and oil prices. Japan's Nikkei and Topix indices closed down 1.6 percent and 1.4 percent respectively, with shares of major exporters weighed down as the yen reached a three-month high during the session. The Shanghai Composite index also fell 1.2 percent, while Hong Kong's Hang Seng index closed down 0.8 percent. Australia's All Ordinaries index outperformed with a decline of just 0.2 percent, with gains for gold and energy companies helping to offset losses elsewhere.
Looking ahead*
On Thursday in Asia/Pacific, the Australian merchandise trade report is due. In Europe, German industrial production, German merchandise trade, Swiss real retail sales, and Eurozone unemployment releases are scheduled. In North America, Canadian housing starts and US jobless claims figures will be released.
