Market Brief: New Year Cheer Has A Familiar Feel

Market Brief: New Year Cheer Has A Familiar Feel

City Index  | Jan 03, 2020 06:12

Stocks - Cash Indices % Change

Stock market snapshot as of [2/1/2020 2:17 pm]

  • Thursday’s stock markets are what it looks like when risk appetite hits the ground running for the first session of the decade. European shares, U.S. stock index futures and Asia-Pacific indices have been on an unbroken tear
  • The White House’s signal that a phase one trade deal with Beijing is on track—Donald Trump sees the accord signed on 15th January—is one stimulus. China’s planned 50 basis point required reserve ratio cut for large banks that will take effect on Monday, is the other biggie
  • As much as investors are keen to ring-in the New Year with sure-footed gains, these influences are of course ‘so 2019’. Not least because predicating a positive risk-asset rally on them continues to ignore a whole host of well-rehearsed reasons to remain cautious. China’s policy easing isn’t even much of a surprise. Official impetus for Beijing to soften monetary conditions is typical at this time of the year ahead of Chinese New Year and Spring Festival holidays. (In 2020 they fall on 24th to 30th January.) Furthermore, the cut was flagged by Premier Li Keqiang late last month. In the context of the PBOC’s well-telegraphed aim to keep downward pressure on rates, there are also good reasons to see future policy reductions as already priced in to an extent
  • As for trade, at best ‘phase one’ caps the bottle, but the genie’s long gone. Major uncertainties remain as to when comprehensive agreements on the most tortuous aspects of U.S.-China commercial relations will be possible, if ever. An end of escalation counts for much, sure. Unfortunately though, risk appetite looks set to remain vulnerable to further discouraging developments on the trade front and beyond. Europe has already been delivered of a timely reminder that Eurozone economy remains in less-than-solid shape, judging by a sobering set of PMI readings out earlier. For today though, optimistic sentiment is probably most of what you need to know
  • Stocks/sectors on the move

  • Spot the China themes but also note the implied reversion plays: Materials led Europe’s sectors ahead of Wall Street open, rising 2% predictably aided most by metal and mining firms. Poland’s KGHM, up 2%, stood out, partly tracking strong futures on that industrial metal and also Nickel
  • Financials are also spotlit, mostly on the back of insurers but also of course on banks. A Polish theme emerged there as well as lenders in that country were another sector sharply ahead, enabling Warsaw’s market to rise higher than most of the region’s indices. The WIG20 was up 1.8% gain, matching the ISEQ All-Share’s move in Dublin, but below OMX Stockholm 2% advance. Polish shares were among 2019’s worst performers at the index level
  • FX Daily % Candles

    FX snapshot as of [2/1/2020 2:17 pm]

    FX markets

  • The pound had a good holiday whilst most participants were away, so perhaps, we shouldn’t read too much into a standout retracement by sterling. GBP/USD was second-biggest faller among majors just now. Sterling implied volatility is lower than December’s fever pitch but high enough above the G10 average to signal that things are still not particularly normal
  • Meanwhile, the dollar joins the reversion theme, breaking a four-day slump with a 0.2% bounce for the Dollar Index. That adds pressure across the board
  • The euro managed to muffle the downside though: data out earlier were weak, but they were better than expected
  • USD/CHF saw 0.9647 highs; recovering from a 16-month low in the middle of last month
  • Aussie and Kiwi bear the brunt. News out of China wasn’t all gravy. Caixin’s manufacturing PMI fell to 51.5 vs. 51.8 in November
  • Economic highlights

    Economic Highlights

    "Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

    Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions."

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    City Index

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