Key Events
After 2019 provided investors with some of the best returns of the just-finished decade, this morning exuberant investors are driving U.S. equity futures, along with global stocks, higher. Fueling the bouyancy: today's stimulus from the People's Bank of China.
Yields are currently advancing, in tandem with equites.
Global Financial Affairs
All contracts on the major U.S. indices—including for the NASDAQ, Dow Jones and S&P 500, which just reached a new record—climbed, spurred by 2019 returns that matched those seen in 2013. Shares of banks and miners have helped boost the STOXX Europe 600, after a two day selloff.
The PBoC said it would boost the supply of cheap money by lowering the amount of cash reserves that lenders must have on hand. As well, the Chinese central bank indicated it will take action to reduce corporate borrowing costs in 2020.
Though the PBoC action was expected, global markets are mostly flashing green, suggesting investors are predisposed to increase risk. China’s Shanghai Composite jumped (+1.15%), along with Hong Kong’s Hang Seng index, (+1.16%).
The yuan managed to rebound from a temporary selloff. However, we expect it to decline over the longer term, as the USD/CNY retests a crucial support level.
Japanese markets remain on holiday and closed for the week.
After today's probable knee-jerk rally, Chinese and global investors will likely settle down to 2020 business and begin focusing on the economy, given the lower-than-expected Caixin PMI result. It's still in expansion territory, but the miss is disappointing. Overall, however, tariffs remain the key hot-button issue and China has yet to confirm the Jan. 15 date announced by President Donald Trump.
Geopolitics will also continue to hover in the background: recent reporting notes that ahead of the holiday, North Korea’s Kim Jung Un said, there " 'will never' be denuclearization on the Korean Peninsula" if the U.S. "persists in its hostile policy towards" his country. According to the Korean Central News Agency, he also boasted of a "powerful nuclear deterrent capable of containing the nuclear threats from the U.S."
In addition, the attack on the U.S. Embassy in Baghdad by Iran-backed militias, which ended yesterday, is a reminder to markets that anything can happen to oil prices.
Crude was higher this morning, but technicals aren't providing clarity regarding where the commodity could go next. The recent golden cross could be signaling an upside breakout or it could be a resistance since early last year.
In FX markets, the Thai baht fell as much as 1.8%, its biggest drop since 2007, amid speculation the Bank of Thailand could be intervening to curb the currency’s strength.
Yields on the 10-year U.S. Treasury climbed to the highest level since Nov. 8, just 0.05% from the highest since July 31.
Up Ahead
- The Federal Open Market Committee (FOMC) Minutes will be released on Friday.
- U.S. ISM manufacturing data is due on Friday as well. The Institute for Supply Management’s PMI is forecast to show a contraction for the fifth straight month.
Market Moves
Stocks
- Futures on the S&P 500 Index advanced 0.4%.
- The Stoxx Europe 600 Index jumped 0.6%.
- The MSCI Asia Pacific Index climbed 0.3%.
- The MSCI Emerging Markets Index gained 0.5%.
Currencies
- The Dollar Index rose 0.1%.
- The euro was little changed at $1.1209.
- The British pound dipped 0.3% to $1.3213.
- The onshore yuan was little changed at 6.967 per dollar.
- The Japanese yen declined 0.1% to 108.82 per dollar.
Bonds
- The yield on 10-year Treasuries advanced two basis points to 1.94%.
- The yield on two-year Treasuries increased two basis points to 1.59%.
- Germany’s 10-year yield advanced two basis points to -0.16%.
- Britain’s 10-yeary yield jumped five basis points to 0.867%.
- Japan’s 10-year yield was unchanged at -0.011%.