Tech Drags US Equities Lower

Daily Analysis - 12/06/2017

Concerns About Historically High Valuations Mount

A selloff in technology stocks dampened an otherwise buoyant Friday for US equities, when all three major indices hit fresh intraday highs. The technology-heavy Nasdaq Composite posted its worst week of the year after a leading Wall Street analyst warned investors about the sector’s vulnerability.

Apple Shares Under Pressure

Technology stocks tanked last week after Robert Boroujerdi, Chief Global Investment Officer at Goldman Sachs, cautioned that low volatility in Apple, Facebook, Amazon and Microsoft may be blinding investors to cyclical factors and regulation risks.

Apple led the decliners on the session, sinking -3.88%, while Facebook, Amazon and Microsoft each lost more than -1.00%. The iPhone maker is likely to be in focus again on Monday after Mizuho analyst Abhey Lamba downgraded Apple to “neutral” from “buy” over the weekend, saying the current share price reflects the best-case scenario for the company.

Lamba also slashed his 12-month target price to $150.00 per share, which is about a dollar above where shares ended Friday. Apple now has six analysts, who have rated the stock a “hold.”

Shares managed to gain back some ground into the close of trading, ending just shy of the $149.00-mark in after-hours trading.

Canada Job Creation Gathers Momentum

According to data from Statistics Canada, job growth in Canada accelerated at its fastest rate in eight months in May, with increased hiring in the manufacturing sector as the jobless rate ticked higher amid more individuals looking for work.

Employers added a net 54,500 jobs, easily topping the consensus estimate for a gain of around 15,000 positions. This was the biggest monthly increase since September of last year, however, the unemployment rate edged slightly higher to 6.60% in May, largely due to an increase in the size of the labour force.

Average hourly earnings rose 1.00% from a year earlier, easing some concerns among Bank of Canada policymakers, who had pointed to tepid wage growth as a sign of slack in the economy.

USDCAD is perched just above the strong support 1.3430 after reversing from a one-week high on Friday.

Japan Machine Orders Fall Sharply

For the first time in three months Japan’s core machinery orders dropped as a slowdown in construction and public sector investment reignited concerns about the country's frail economic recovery.

Core machine orders are a leading indicator of business spending, decreasing -3.10% during April following a 1.40% rise in March. The latest result published by the Japanese Cabinet Office overnight fell well short of the -1.00% dip forecast by economists polled by Nikkei.

Nevertheless, annualized growth in the figure remained positive, with core orders gaining 2.70% on a yearly basis. Separately, inflation data showed Japan’s producer price index remaining flat month-on-month in May, missing expectation of a 0.10% rise while marking the weakest reading since October.

USDJPY is down in early Monday trade, with the pair currently hovering around the 110.200-mark.

Mexican Industrial Output Declines

Hurt by a drop in both construction and mining activity, industrial production in Mexico fell in April per data released by the national statistics agency INEGI.

On a seasonally adjusted month-over-month basis, industrial output was down -0.30%, underscoring the biggest decline since August of 2016. From a year ago, output fell -4.40%, falling well below the -2.20% decline projected by economists surveyed by The Wall Street Journal.

Manufacturing was the lone bright spot, rising 0.60% from March and 5.10% from the same period last year. The downbeat April industrial production figures support the view that economic growth will likely slow through the rest of the year as private consumption begins to lose momentum and the renegotiation of NAFTA begins.

USDMXN is modestly higher in Monday morning trade, with the pair was last seen around 18.1885.