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On 2 January 2020 - US, Europe, Asia rally on US-China trade hopes, Chinese stimulus

Anne D Picker

Anne D Picker - Econoday

Chinese bank reserve requirement cut  soothes recession worries.

US markets

US equities advanced Thursday on better global economic expectations for the new year fueled by US-China trade hopes and fresh Chinese monetary policy stimulus. The Dow industrials rose 1.2 percent, the S&P 500 gained 0.8 percent, and the NASDAQ rallied 1.3 percent.

Markets rose after the People’s Bank of China cut bank reserve requirements Thursday by 50 basis points in a bid to boost lending and liquidity. Separately, President Trump on Tuesday said the phase-one US-China trade pact would be signed on Jan. 15, and phase-two trade talks would begin.

Cyclical sectors led the stock gains Thursday, along with shares most sensitive to Chinese demand, including technology, industrials, and finance. Among tech shares, index heavyweight Apple was a standout, up 2.4 percent, and Microsoft rose 1.9 percent. Energy stocks outperformed, led by integrated oil companies including Exxon Mobil, up 1.6 percent. Consumer discretionary shares showed strength, led by Amazon, up 2.7 percent, while Facebook rose 2.2 percent. Defensive sectors including utilities, consumer staples, and REITs underperformed.

Among companies in the news, networking equipment maker Anixter rose 3.9 percent on news of an improved deal to be acquired by Clayton, Dubilier, the private equity firm.

In US economic news, initial jobless claims hit expectations in the December 28 week at 222,000, little changed from the previous week, though the 4-week average, reflecting prior increases, did rise a noticeable 4,750 to 233,250. This is a two-year high and is nearly 15,000 above the level of late November.  In a separate report, moderate growth is the improved signal for a second month in a row from the manufacturing PMI. The index finishes December at 52.4, down 1 tenth from December's flash and down 2 tenths from final November, yet nevertheless extending a favorable six-month trend up from 50, the line that separates monthly expansion from monthly contraction.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 23 cents to US$66.23, while gold was up $6.60 at US$1,529.70. The US dollar rose against most currencies but declined vs. the yen. The US Treasury 30-year bond yield declined 5 basis points to 2.34 percent while the 10-year note yield fell 4 basis points to 1.88 percent.

European markets

European equities gained Thursday after China cut bank reserve requirements and on upbeat US-China trade sentiment after President Trump announced the Jan. 15 signing of a trade pact, and the start of phase-two trade talks. The Europe-wide STOXX 600 gained 0.9 percent, the German DAX rose 1.0 percent, the French CAC advanced 1.1 percent, and the UK FTSE-100 was up 0.8 percent. 

Businesses most exposed to China, including banks, technology, and mining firms, led the gains. Among tech stocks, semiconductors, software, and hardware companies outperformed.  Defensive shares, including health care, consumer staples, and real estate, lagged.

In economic news, UK manufacturing activity was again in recession territory in December. The 47.4 flash sector PMI was revised up just a tick to 47.5, now 1.4 points short of its final November reading and even further below the 50-expansion threshold. In a separate report, the final Eurozone manufacturing PMI for December came in at a lowly 46.3, up from the 45.9 flash estimate but still down from November's final 46.9 and the 50-expansion threshold. Meanwhile, German manufacturing was marginally better than originally thought in December. The flash sector PMI was revised up 0.3 points but, at just 43.7, was still 0.4 points below its final November outturn and deep in recession territory.

Asia Pacific markets

Major Asian markets closed higher Thursday after data showed moderate growth in the Chinese manufacturing sector in December. The People’s Bank of China also announced Wednesday that it will lower bank reserve requirements by 50 basis points effective next week, a move that should help smooth liquidity conditions ahead of an earlier-than-usual lunar new year holiday period later in the month. The Shanghai Composite index closed up 1.2 percent on the day, while Hong Kong’s Hang Seng index advanced 1.3 percent. Australia’s All Ordinaries index underperformed, up just 0.1 percent. Japanese markets were closed.

The Markit Manufacturing PMI headline index for China eased from 51.8 in November, its highest level since December 2016, to 51.5 in December, broadly in line with the official CFLP Manufacturing PMI, released earlier in the week, which showed no change in its headline index. Respondents reported that output, new orders, and new export orders all grew at a slightly slower pace than in November, with the survey indicating that payrolls and confidence about the twelve-month outlook were broadly stable and that price pressures remain weak. The equivalent survey for the Indian manufacturing sector, also published Thursday, showed an increase in its headline index from 51.2 in November to 52.7 in December, with respondents reporting stronger growth in output, new orders, new export orders, and payrolls and stronger price pressures but somewhat weaker confidence. 

Advance estimates for Singapore's gross domestic product showed an increase of 0.1 percent quarter-on-quarter in the three months to December (seasonally adjusted and annualised), slowing sharply from revised growth of 2.4 percent in the three months to September. Year-on-year growth in Singapore's GDP was 0.8 percent, up from 0.7 percent previously, with weaker growth in the manufacturing sector offset by stronger growth in the services sector.

Looking forward

On Friday in Europe, French CPI, Swiss SVME purchasing managers index, Eurozone M3 money supply, UK PMI construction, UK M4 money supply, and German CPI releases are scheduled. In North America, US ISM manufacturing and US construction spending reports are due, plus the latest FOMC meeting minutes will be released.

Global stock markets

 

Index

2 Jan 2020

Daily Change

% Change Daily

North America

United States

Dow

28868.8

330.36

1.2

 

NASDAQ

9092.19

119.58

1.3

 

S&P 500

3257.85

27.07

0.8

Canada

S&P/TSX Comp

17099.95

36.52

0.2

Europe

UK

FTSE 100

7604.3

61.86

0.8

France

CAC

6041.5

63.44

1.1

Germany

XETRA DAX

13385.93

136.92

1.0

Italy

MIB

23836.26

329.89

1.4

Spain

Ibex 35

9691.2

142.00

1.5

Sweden

OMX Stockholm 30

1808.63

36.78

2.0

Switzerland

SMI

*

*

*

Asia/Pacific

Australia

All Ordinaries

6809.96

7.56

0.1

Japan

Nikkei 225

23656.62

*

*

 

Topix

1721.36

*

*

Hong Kong

Hang Seng

28543.52

353.77

1.3

S. Korea

Kospi

2175.17

-22.50

-1.0

Singapore

STI

3252

29.17

0.9

China

Shanghai Comp

3085.2

35.07

1.2

Taiwan

TAIEX

12100.48

103.34

0.9

India

Sensex 30

41626.64

372.90

0.9

*Markets closed

Note: all releases are listed in local time
 

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