Trade of the Day: Hong Kong and China stocks boosted by PBOC cut; US Treasuries weaken; oil and gold advance
Quote of the Day: “Riding on the success of listing regulations reform … we are still cautiously optimistic about the Hong Kong IPO market outlook for 2020,” said PwC’s Benson Wong. “In the long run, we are very confident that Hong Kong will continue to be the best financing platform in the region as we predict that more new economy enterprises are expected to be listed on HKEX.” He expects Hong Kong to raise $230 billion to $260 billion in 2020 via IPOs, making it one of the top three global IPO fund-raising markets of the year.
Number of the Day:. 800 billion – the estimated amount expected to be injected into China’s banking system by PBOC’s 50 basis point cut in the reserve ratio.
Tip of the Day: “The US economy has been more resilient than the rest of the world over the past year or so, largely because trade and especially, net exports, represent a relatively small part of its economy,” said Bob Jolly, head of global macro at Schroders Investment Management. “However, evidence is building to suggest the US is not immune to external developments. It looks increasingly likely that the US economy will slow, probably leading to more aggressive easing from the Federal Reserve, and in turn weakening the dollar. Should the US cut rates further, the interest return on certain assets, bonds in particular, will fall. This will make them less attractive to foreign investors, resulting in lower demand for US dollars.”
Asian markets kicked off 2020 with a flying start as China’s easing measures and some positive signs in economic data encouraged investors to load up on risk.
MSCI Asia Pacific ex-Japan index rose 0.4%, the S&P/ASX 200 index was up 0.1% while the PBOC’s easing measures drove China’s CSI 300 index 1.4% higher and the Hang Seng index up by 1.25%. Futures on the S&P 500 Index rose 0.4% and the Stoxx Europe 600 Index climbed 0.6%.
On Wednesday, China’s central bank announced a reduction in the money that banks have to hold in reserve to support the economy by releasing an estimated 800 billion yuan into the banking system. The 50 basis point reduction in the Reserve Requirement Ratio (RRR) would “support the development of the real economy and reduce the actual cost of social financing” and would take effect from January 6.
Data published on Thursday showed the manufacturing PMI for Emerging Asia rose to 50.8 in December from 50.2 in November, staying in the expansionary zone for the second consecutive month. “Buoyed by expectations of a near-term agreement for a US-China phase-one trade deal, the manufacturing PMI improvements were broad-based, led by India (+1.6pts), Indonesia (+1.3pts), Taiwan (+1.0pts), and Korea (+0.7pts), with Indonesia the only country to report a sub-50 reading,” a Barclays analyst said in a note.
Earlier this week, data released showed China’s official manufacturing PMI was steady at 50.2 in December, staying above 50 for the second consecutive month and on Thursday the Caixin China General Manufacturing PMI also stayed above 50 despite the decline from November.
“China’s manufacturing economy continued to stabilize in December, although the expansion in demand was not as strong as the previous two months,” said Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group.
“Positive changes included improved business confidence, and strengthened willingness to increase production and inventories, which are beneficial to the job market. Subdued business confidence was a major factor behind the economic slowdown this year. As the phase one trade deal between China and the U.S. has sent out positive signals, there is room for a recovery in business confidence, which should be able to help stabilize the economy.”
Markets remain upbeat, despite the strong rally in 2019, after US President Donald Trump’s tweet that phase 1 of thetrade deal with China would be signed on Jan. 15 at the White House. The trade war between the world’s two biggest economies will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, according to IMF forecasts.