Market Wrap US-Europe 18 August: Nasdaq Sheds 1.3 Percent as Health Care Outperforms

By The Edge Research Team

Wall Street fell for a third consecutive session on Tuesday with the selling concentrated in technology, per CNBC. The Nasdaq Composite lost 1.33 percent to 26,289.71, the S&P 500 fell 0.69 percent to 7,691.76 and the Dow Jones Industrial Average slipped 0.22 percent to 53,343.40, a third straight decline for all three counted from our published closes, while health care and biotechnology funds touched all-time highs as investors hunted for strength beyond tech, per CNBC. The official Treasury curve eased at the long end after the morning’s multi-decade prints, with the 30-year down 3 basis points at 5.28 percent, our calculation from the official rows.

The US session was a rotation with a defensive accent. The Russell 2000 fell 1.30 percent to 3,017.89, per CNBC, a deeper decline than the S&P 500’s, and the Cboe Volatility Index rose 4.28 percent to 15.84 at its 16:15 New York final print, per Cboe, a second consecutive rise of more than 4 percent, counted from our published closes. Memory chipmakers were under pressure from the premarket on, with Micron Technology and Sandisk each down more than 4 percent before the bell, per CNBC, while the money that left tech found health care: the Health Care Select Sector fund and the Nasdaq Biotechnology index touched record highs, and Johnson & Johnson rose more than 3 percent in afternoon trading heading for its first record close since July, per CNBC. Home Depot beat on earnings and revenue but kept its full-year guidance unchanged for a second consecutive quarter, citing pressure from fuel, energy and other input costs, and closed 0.12 percent lower, per CNBC.

The rates market told a calmer story than the morning suggested. The official Treasury par yield curve for 18 August puts the 30-year at 5.28 percent, down 3 basis points from Monday, the 10-year at 4.71 percent, down 1 basis point, and the 2-year unchanged at 4.19 percent, our calculation from the Treasury’s published 18 and 17 August rows, after long-dated yields had traded around their highest levels in roughly two decades earlier in the day, per CNBC. The 2-year to 30-year spread narrowed from 112 to 109 basis points, our calculation, taking back three of the four basis points it added in Monday’s bear steepening from 108. CNBC’s fixed income reporting attributed the run-up in long yields that began in June to deficit concerns, inflation holding above the Federal Reserve’s 2 percent target and heavy corporate issuance competing with Treasurys, a rising term premium in short.

In Europe, the long-yield pressure carried the session and London was the exception. The Euro Stoxx 50 fell 0.95 percent to 6,468.17, France’s CAC 40 0.82 percent to 8,509.36 and Germany’s DAX 0.80 percent to 26,128.36, per CNBC, with Germany’s 30-year bund yield at its highest since 2011 during the day, per CNBC. London’s FTSE 100 edged up 0.07 percent to 10,728.04, the only gainer among the four benchmarks tracked here, helped by a labour report that kept the unemployment rate steady at 4.9 percent, per CNBC, with retailer H&M the top Stoxx 600 performer during the morning after price target upgrades, per CNBC.

In commodities, energy held its ground into the New York evening while the metals rout extended, as covered in our commodities wrap. ICE Brent for October traded at 91.09 dollars a barrel, up 0.24 percent, and WTI for September at 85.12 dollars, up 0.73 percent, per CNBC, while COMEX gold for December deepened its decline to 4,396.70 dollars an ounce, down 1.72 percent, per CNBC.

In currencies and crypto, the dollar firmed slightly across the board. The euro eased 0.06 percent to 1.1572, sterling 0.13 percent to 1.3526, and the yen weakened 0.14 percent to 159.65 per dollar, per CNBC, with the Kuwaiti dinar at 0.3071 and the dollar index up 0.04 percent at 99.678. The Central Bank of Egypt’s official rate for 18 August is 50.4459 buy and 50.5849 sell per dollar, about 0.62 percent weaker than Monday on both official quotations, our calculation. Bitcoin added 0.47 percent to 64,570.00 dollars, per CNBC.

For reference, Tuesday’s closes from our 18 August wrap show the Gulf steadying while Asia sold off, with the Nikkei down 2.54 percent leading the region’s losses and Egypt’s EGX 30 down 0.25 percent in a second session of profit-taking.

US equities, 18 August close, ranked by change

Europe equities, 18 August close, ranked by change

MENA equities, Tuesday 18 August closes, for reference, ranked by change

Asia equities, Tuesday 18 August closes, for reference, ranked by change

Commodities, late New York, 18 August, ranked by change

Currencies, 18 August

US Treasury yields, official daily par yield curve, 18 August

United States Department of the Treasury, Daily Treasury Par Yield Curve Rates; the curve is derived from indicative bid-side quotations obtained at or near 3:30 PM each trading day in New York; changes are our calculation from the two published rows.

Volatility and crypto, 18 August, ranked by change

Why it matters: Tuesday’s Western session was rotation inside a broader risk-off move rather than a clean flight from equities, our reading. Technology carried the heaviest pressure, with the Nasdaq falling nearly twice as fast as the S&P 500, but the Russell 2000 fell nearly as far as the Nasdaq, so the selling was not confined to tech, while health care and biotechnology supplied the relative strength and set records. The rates signal was more nuanced than the morning’s headlines: long-dated yields retreated from their intraday highs, with the official 30-year par yield ending 3 basis points below Monday at 5.28 percent and the 2-year to 30-year spread giving back most of Monday’s widening. That eased the day’s immediate duration pressure without erasing the rise in long yields that has run since June or the deficit, supply and inflation concerns behind it, per CNBC’s reporting of the drivers. With the volatility index up a second day at 15.84 while the long end eased, near-term risk aversion stayed more visible in equities than in the bond market’s day-end pricing, our reading.

Outlook: The markers from here are whether the official curve’s pause becomes a turn or the June trend reasserts itself, whether the Nasdaq’s third decline extends into a correction of the chip complex or the health care bid broadens, and whether Brent can sustain the 91 dollar area through the weekly US inventory data, our reading. Wednesday brings the next Gulf and Egypt sessions, where the regional signal is whether Tuesday’s stabilisation holds, our reading.

Sources: CNBC; Cboe; United States Department of the Treasury; Central Bank of Egypt.

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