Manufacturing rebound, tech M&A power Nasdaq to fresh record
Investors celebrated the start of the month and week with a basket of positive news on U.S. manufacturing, and deal-making sending all three of the major stock averages higher.
The Nasdaq, leading the gains with a jump of over 1 percent, hit a new record which was celebrated by President Trump in a tweet which included a jab at Democratic Presidential hopeful Joe Biden.
Microsoft is helping lift the broader markets on word the tech giant is in "preliminary discussions" to buy TikTok’s U.S. business which was confirmed by parent company ByteDance CEO Zhang Yiming in an internal memo.
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News of the talks was first reported by FOX Business.
The Dow Jones Industrial Average and the S&P 500 also rose helped by large-cap tech including Apple which climbed to a new record. The maker of iPhones became the biggest company in the world last week toppling Saudi Arabia's Aramco.
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In other deal news, Marathon Petroleum sold Speedway to 7-Eleven in an all-cash deal valued at $21 billion which "establishes a relationship with 7-Eleven anchored by long-term fuel supply agreements for approximately 7.7 billion gallons per year, with additional growth opportunities" according to the company.
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On the economic front, U.S. manufacturing activity rose in July to 54.2 in July, a slight bump from 52.6 now at a 16 month high. Any reading above 50 signals expansion.
In stock news, Clorox shares dropped after the maker of disinfectant wipes, said sales for 2021 will increase at a “flat to single-digit” pace. The company is “recognizing there is significant uncertainty about future COVID-19 impacts related to various areas of its business” according to its earnings release which reported a “22% sales increase, including double-digit growth across all reportable segments” and a 28 percent jump in profit for the fiscal fourth quarter.
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In commodities, West Texas Intermediate crude rose nearly to 2 percent to the $41.04 per barrel level while Natural Gas soared 15 percent on forecasts of an incoming heatwave across the nation. Gold was little changed at $1987.01 an ounce. Exchange-traded funds mirroring these commodities were popping.
Overseas, the pan-continental Stoxx Europe 600 rose 1.7%, bolstered by survey data showing signs of recovery in euro area factories.
Secretary of State Mike Pompeo’s comments over the weekend that the White House may take action against Chinese software companies stoked concerns about deteriorating relations between the world’s two largest economies. Heightened tensions between Beijing and Washington have weighed on investor confidence for weeks, with growing expectations that the U.S. government will take a harder line in relations with Beijing in the run up to November’s presidential election.
“It seems the closer the election gets, the fiercer tensions are likely to be,” said Oliver Jones, senior markets economist at Capital Economics. “The China hawks in Washington appear to have the upper hand.”
The video-sharing app TikTok, owned by a Chinese company, has become one flashpoint after U.S. officials expressed concerns that TikTok could pass on the data it collects from Americans to China’s authoritarian government. President Trump on Friday signaled that he was considering a ban of the popular app. Microsoft said Sunday that it will move forward with plans to buy its U.S. operations following a call between Microsoft CEO Satya Nadella and Mr. Trump.
Shares in Microsoft rose 3% ahead of the opening bell in New York.
Among European equities, HSBC Holdings slid 3.6% in London. The bank’s second-quarter profit fell 96% as the disruption caused by the pandemic complicated its efforts to refocus on Asia while dealing with the rising U.S.-China political tensions. Siemens Healthineers fell 7.2% in Frankfurt after the medical technology company said it would acquire Varian Medical Systems for $16.4 billion, or roughly 25% above its current market value.
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In the Asia-Pacific region, China’s major equity benchmark, the Shanghai Composite Index, rose 1.8% by the close of trading after a private gauge of manufacturing activity on the mainland rose in July to its highest level in more than nine years, boosted by accelerated production and recovering demand.
Japan’s Nikkei 225 led Asian equities’ gains, climbing 2.2% to end the trading session in positive territory for the first time since July 21. Sentiment improved due to a weaker Japanese yen against the U.S. dollar’s broad rebound, according to Chang Wei Liang, a macro strategist at DBS Bank. A weaker yen helps lift profitability of Japanese exporters, supporting stocks.
The ICE Dollar Index, which tracks the greenback against a basket of other major currencies, ticked up 0.5% while remaining near its lowest level in over two years. The dollar had made a sharp U-turn this summer following a long rally, and its slide added further support to the booming market rally, lifting U.S. stocks and commodities.
In bonds, the yield on the benchmark 10-year U.S. Treasury ticked up to 0.564%, from 0.536% Friday.
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A closely watched metric of economic activity signaled that European factories are staging a recovery. Purchasing Managers Index data for manufacturing in the euro area broke through the key level indicating growth, a score of above 50, for the first time in a year and half, when the bloc’s manufacturing sector entered recession. It had plummeted during the coronavirus pandemic.
However, economists cautioned that industrial production was still well below pre-pandemic levels at the end of the second quarter. The compiler of the survey, IHS Markit, also said “severe job-cutting” continued as firms were operating under capacity.
“We had a nervous week last week, but the market loves a good PMI survey. It’s a rally on the back of the better than expected numbers,” said Steen Jakobsen, chief investment officer and chief economist at Saxo Bank.
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The Institute for Supply Management releases is due to release its U.S. manufacturing index for July at At 10 a.m. ET. Factory activity is expected to show an improvement for the third straight month as manufacturers rebound from shutdowns and supply-chain disruptions.
—Frances Yoon contributed to this article.
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