New year, same market. The stock market is still celebrating knowing that its favorite party favor -- accommodative monetary policy -- is still being pumped through its veins.
The People's Bank of China started off 2020 with a “roaring” decision to cut its required reserve ration for small and large banks by 50 basis points, effective January 6. This news wasn't a huge surprise given Premier Li's recent talk of possibly using the interest rate channel to provide policy stimulus.
The policy action comes in front of the Chinese Lunar New Year celebrations later this month has set the tone for global equity markets to begin the year.
China's Shanghai Composite increased 1.2%,
Hong Kong's Hang Seng Index increased 1.3%,
Major indices in the U.S. are set up to follow the rest of the world with a bullish bias when the opening bell rings.
Currently, the S&P futures are up 20 points and are trading 0.6% above fair value.
The Nasdaq 100 futures are up 78 points and are trading 0.9% above fair value.
The Dow Jones Industrial Average futures are up 170 points and are trading 0.6% above fair value.
Though the PBOC’s decision sets the tone for the rest of the world, the U.S. market would have likely been't be trading higher today anyway, irrespective of the PBOC move. The first trading day of a new month is often injected with a bullish bias as new money gets put to work.
It is the first trading day of a new year following what was a good last trading day of the old year, which was the best year for the stock market since 2013. Simply put, nothing happened between that last trading day and today to disrupt that bullish bias.
Global equity markets can always find room to cheer an accommodative policy move, and they have looked to do so in spite of a weaker-than-expected Caixin Manufacturing PMI report for December out of China and final Manufacturing PMI readings for December out of the eurozone that were still below the 50.0 expansion/contraction line.
The new year has begun but last years mantra has carried over as the PBOC move has overshadowed the soft manufacturing data. It has also overshadowed this morning's initial claims report, which was roughly in-line with expectations.Initial claims for the week ending December 28 decreased by 2,000 to 222,000 (consensus 225,000) while continuing claims for the week ending December 21 increased by 5,000 to 1.728 million.
With that said, it’s time to roar onwards and upwards until we have a reason for the high to wear off.
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