Stocks mixed as Beijing adds stimulus, Brent surpasses 2021 high

Passers-by wearing protective face masks walk past an electronic board displaying global stock indices amid the coronavirus disease (COVID-19) pandemic in Tokyo, Japan November 1, 2021. REUTERS/Issei Kato

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  • Asian stock markets :
  • Nasdaq futures slip as Treasury yields continue to rise
  • China eases policy as retail data shows strain from coronavirus
  • US earnings season is upon us, tech stocks are vulnerable
  • Brent has been sweeping 2021 from top to bottom since 2018

SYDNEY, Jan 17 (Reuters) – Stock markets were unsettled on Monday as a slew of Chinese economic data confirmed the deadly effect of coronavirus restrictions on consumer spending and prompted Beijing to ease monetary policy again.

A holiday in the United States made for weak trading, but that didn’t stop Treasury futures from falling further and Brent crude hit a three-year high of $86.71 a barrel.

Worryingly for the world’s second largest economy, retail sales rose just 1.7% yoy in December, missing forecasts for a 3.7% rise.

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Industrial production fared better and the economy as a whole grew slightly above forecast at 4.0% in the fourth quarter.

The Chinese central bank also surprised by cutting some key interest rates by an impressive 10 basis points. Continue reading

“The cut was larger than expected, suggesting authorities are more concerned about economic weakness,” said Carlos Casanova, senior Asia economist at Union Bancaire Privee in Hong Kong.

“The latter (Omicron risks) are only fully priced in in the combined January-February data as the most severe lockdowns started in late December.”

The easing appeared to help Chinese blue chips (.CSI300) which rose 0.9% on the data.

MSCI’s broadest index of Asia Pacific equities outside Japan (.MIAPJ0000PUS) slipped 0.3%, while Japan’s Nikkei (.N225) gained 0.8% after shedding 1.2% last week.

Nasdaq futures slipped another 0.3%, while S&P 500 futures lost 0.1%. EUROSTOXX 50 futures were up slightly by 0.4% and FTSE futures were flat.

The key feature of the market of late has been a rotation into value stocks and away from growth, particularly technology. The information technology sector of the S&P 500 (.SPLRCT), which makes up nearly 29% of the index, is down 5.5% this year.

With valuations still elevated, gains must be strong to halt further losses. Overall earnings for the S&P 500 are expected to rise 23.1% this season, according to Refinitiv IBES, while the technology sector is expected to rise 15.6%.

Companies reporting this week include Goldman Sachs (GS.N), BofA (BAC.N), Morgan Stanley (MS.N) and Netflix.

The market will be spared speeches from Federal Reserve officials this week ahead of their January 25-26 monetary policy meeting, but there was more than enough aggressive commentary to see the market expect a first rate hike for March and interest rates almost fully pricing in 1.0% at year-end.

There was also talk of the Fed trimming its balance sheet sooner than previously thought and removing some of the excess liquidity from global markets.

10-year cash bond yields climbed 1.8% last week to a year-high, while futures implied yields jumped to 1.86% on Monday.

BEWARE OF THE BOJ

It will be a watch at a Bank of Japan (BOJ) monetary policy meeting this week amid rumors that it will revise its outlook for growth and inflation.

While a move is unlikely this year, financial markets may be underestimating their willingness to phase out their once-radical stimulus plan. Continue reading

This was one of the reasons for the yen’s rally, with the dollar falling 1.2% last week. On Monday, the dollar had regained some ground to 114.45 yen, still well above key chart support at 112.52.

The euro was slightly lower at $1.1414, while rising bond yields helped the dollar index rally as high as 95.258, off a 10-week low of 94.626 on Friday.

“We continue to believe that the greenback will strengthen again shortly as we anticipate that strong cyclical price pressures in the US will result in the Fed tightening more and for longer than investors are currently discounting,” argued Joseph Marlow, economist at Capital Economics.

They expect Fed rates to top 2.5% while the market has priced in a peak of around 1.75-2.0%. .

The risk of higher interest rates held back non-yielding gold at $1,816 an ounce while industrial and energy resources benefited from robust demand and limited supply.

Oil prices have risen for four straight weeks, and demand is such that physical barrels of oil are changing hands at near-record premiums.

Brent added another 13 cents to $86.19 a barrel after previously surpassing a 2021 peak of $86.70. The 2018 high is $86.74 and a break would take it to heights last seen in 2014. US Crude Oil was also up 35 cents at $84.17.

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Reporting by Wayne Cole; Edited by Himani Sarkar and Ana Nicolaci da Costa

Our standards: The Thomson Reuters Trust Policy.

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