Global markets rally as US equities rise and Chinese authorities pledge stimulus

By Newsdesk

January 15 2024
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Investors are riding a wave of cautious optimism as US equities demonstrate notable gains following a positive trend from the European stock markets, with technology shares spearheading the advance.

Global markets rally as US equities rise and Chinese authorities pledge stimulus

This robust performance helped propel the S&P 500 to a climb of over 1.40% on Monday, as the Nasdaq 100 surged beyond 2%. This market buoyancy, however, didn't extend to Boeing and Spirit AeroSystems, which both suffered a blow after the grounding of Boeing’s 737 Max 9 model due to an Alaska Air flight incident.

The optimistic market sentiment appears to be spurred by multiple factors:

A significant milestone in US politics saw agreement on a spending deal for 2024, a pivotal move in staving off a government shutdown and contributed to drawing US 10-year yield back to around the 4% threshold.

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Chinese authorities signaled their intent to lower reserve requirements in a bid to encourage lending. Though this commitment from the People's Bank of China (PBoC) to enhance liquidity stirred an uptick in global risk assets, it somewhat paradoxically left Chinese stocks relatively untouched.

Indeed, while Chinese stimulus measures might not have stirred as much enthusiasm for the country's own equities, they are expected to invigorate global industrial metals due to China's insatiable demand pertinent to industries and construction.

Another source of hope for investors comes with the anticipation of a forthcoming US CPI report, speculated to be soft enough to allay inflation fears, coupled with a persistent decline in crude oil prices which offer some comfort amidst skyrocketing shipping costs arising from Red Sea tensions.

Oil prices mirror the cautiously optimistic trend, with a steep drop of over 4% pulling American crude close to $70 per barrel. Saudi Arabia's price cut for Arab Light crude to Asian clients further emphasizes the ongoing global supply increase, intensifying competition in the crude market, and looming concerns over a deceleration in global growth and demand.

This downward spiral in oil prices serves to moderate inflation worries and maintains a dovish stance within the Federal Reserve (Fed), which, in turn, bodes well for stock market valuations.

Amid these market developments, the US dollar remains soft, even as a 'death cross' formation on the US dollar index chart signifies a potential lagging indicator of future performance. Some analysts suggest that the perceived dovish Fed expectations have pushed ahead of actual policy, thus leaving room for a corrective uptick in the greenback's value.

Forex markets also indicate that the EURUSD may continue to bump up against the 1.10 resistance, and USDJPY could struggle to break through the 140 support. The combination of these currency movements and the actions of the Bank of Japan (BoJ) continue to exert a significant influence on investment strategies, particularly as the BoJ is not expected to alter its negative rate policy in the near future.

Cryptocurrency is also gaining ground, with Bitcoin extending its reach to $47K in light of imminent ETF approvals that could see major financial players like Blackrock making substantial investments.

On the precious metals front, gold has faced downward pressure at the start of the year owing to the rebounding US yields and a stronger US dollar. However, if the upcoming US inflation report heralds a softer outlook, we could see gold reverse the trend and climb past the $2050 level, signaling yet another dimension to the multifaceted global market landscape.

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