The Thursday Market Minute
- Global stocks book solid gains after Trump signals January 15 signing for U.S.-China trade pact.
- Private readings of factory activity in China shows ongoing expansion, with improved business confidence, while the PBOC cuts banks’ reserve requirement ratio to boost lending.
- Government bond yields continue to rise as global sentiment improves, with 10-year German bunds at a 7-month high of -0.175%.
- Wall Street futures set to test record highs on the first trading day of the year Thursday ahead of weekly jobless claims data at 8:30 am Eastern time.
U.S. stocks look set to test fresh record highs Thursday as investors kick-off the new trading year in a buoyant mood driven by the prospect of a formal trade agreement between Washington and Beijing and improving factory activity readings from the world’s biggest economies.
President Donald Trump indicated Tuesday that “high level” officials from China would visit the White House on January 15 to sign the phase one trade agreement brokered last month following nearly a year and a half of negotiations.
While details of the pact remain scant — beyond pledges to roll back tariffs on China-made goods and increase the purchase of American-made agricultural products — investors have cheered the fact that the two sides are at least inching towards a progression conclusion of the 18-month dispute.
The trade truce has also paralleled a brightening mood from some of the world’s biggest economies, with private data tracking manufacturing activity in Europe showing signs of improvement and readings from China indicating ongoing expansion — and improved confidence — despite the lingering trade uncertainty.
In the U.S., a solid labor market, low interest rates, a weakening dollar and a dovish Federal Reserve are all providing further support to domestic equities, which could test record highs again today even as trading volumes remain thin during the holiday shortened week.
Futures contracts tied to the Dow Jones Industrial Average are indicating a 145 point opening bell gain that would take the 30-stock average just shy of its December 27 peak.
S&P futures, meanwhile, are marked 15 points higher, indicating an opening bell level for the benchmark that is around 2 points south of its all-time high.
Overnight in Asia, a solid reading of manufacturing activity in China, as well as a New Year’s Day move by the People’s Bank of China to lower the amount of reserves banks must hold on their balance sheets — allowing a further $115 billion into the financial system — helped boost regional stocks, with the MSCI Asia ex-Japan index rising 0.54% heading into the final hour of trading.
European stocks were stronger, as well, with the Stoxx 600 rising 1% by mid-day in Frankfurt, boosted by energy and financial stocks, while Britain’s FTSE 100 was marked 1.02% to the upside even as the pound edged higher to 1.3206 against a softer U.S. dollar.
Global oil prices were also on the rise, boosted by the prospect of trade detente between the U.S. and China, rising Gulf region tensions following the attack on the U.S. embassy in Iraq earlier this week and the first day of OPEC production cuts that, alongside its December 2017 pact, will take a combined 1.7 million barrels of crude from the market each day.
Brent crude futures contracts for February delivery, the global benchmark, were seen 33 cents lower from their Tuesday close in New York and trading at $66.33 per barrel, while WTI contracts for the same month were marked 16 cents lower at $61.22 per barrel.
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