Investing.com -- China's central bank loosened monetary policy a little, ahead of some big local debt sales and the upcoming Chinese new year. Asian and European stock markets have started with a bang on the basis of that and President Trump's naming of Jan. 15 for the signing of his 'phase-1' trade deal with China. Tney're not paying much attention to yet more weak manufacturing PMIs. And the minutes from the Fed's last policy meeting are due later. Here's what you need to know in financial markets on Thursday, 2nd January.
1. Markets off to a flying start in 2020
World stock markets are starting 2020 with a bang, as markets reopen for the first time since President Donald Trump confirmed the Jan. 15 signing date for his ‘phase-1’ trade deal with China.
By 6:30 AM ET (1100 GMT), Dow futures were up 155 points, or 0.6%, while the S&P 500 Futures contract posted similar gains and the Nasdaq 100 futures was up 0.7%.
Gains were even bigger in Europe, where markets are supported by a general perception that the valuation discount relative to U.S. widened sharply in 2019.
In Asia, the Shanghai Composite rose to its highest in eight months while Hong Kong’s Hang Seng Index also rose 1.3%, while India’s two main indices closed near all-time highs on hopes of fresh fiscal stimulus.
2. China cuts reserve ratio requirement
The other big support from markets is coming from China, where the central bank again loosened its reserve requirement for banks, freeing up the equivalent of $115 billion in liquidity.
The move is the latest in a series of small steps to loosen monetary conditions since the U.S.-China trade war began in earnest in the spring of 2018. It comes ahead of a seasonal spike in demand for liquidity from local banks ahead of the Chinese new year, and ahead of a flood of new debt issuance by local authorities for the year’s planned infrastructure projects.
Analysts said the move may prefigure further gentle declines in the PBoC’s policy rate. The yuan was broadly stable at 6.9632 to the dollar.
3. Europe's factories couldn't see the end of 2019 quickly enough
Markets around the world were shrugging off as old news the latest round of purchasing manager indices from IHSMarkit, which showed Europe’s factories in particular still struggling with the effects of last year’s slowdown.
Upward revisions to both the French and German manufacturing PMIs helped the euro zone PMI to a final reading of 46.3, up from a preliminary 45.9 but down from November and still clearly below the 50 level that separates growth from contraction. The U.K. PMI, meanwhile, fell to its lowest since late 2012 under the combined uncertainties of Brexit and the general election.
China’s fell by a more modest 0.3 to 51.5, a three-month low but still near its highest in the last 18 months. Sentiment was in any case supported by reports that industrial profits had rebounded strongly in November.
4. Fed minutes, jobless claims due
Apart from the PMIs (the U.S. one is due at 9:45 AM ET or 1445 GMT), the data calendar’s only highlights are the Federal Reserve’s minutes from its December policy meeting, which are due at 2 PM ET.
There are also U.S. initial jobless claims, as usual, at 8:30 AM ET. Economists polled by Investing.com expect a figure of 225,000.
5. FDA set to reprieve menthol in vaping ban
The U.S. Food and Drug Administration is set to water down its ban on vaping products, according to The Wall Street Journal, whose sources said the initial plan for a total ban would be unpopular in some key states in election year.
The WSJ said the FDA aims to pull from shops all e-cigarette refill pods except those formulated to taste like tobacco or menthol. Menthol is thus set to get a reprieve, while the fruit- and mint-flavored products in vogue with younger users are set to be nixed.