US equities experience biggest one-day rally since 2009, declines in China

Summary:

• US equities surged as concerns over potential Powell firing eased

• Negotiators from the US to visit China in early January

• Profits of the Chinese manufacturer’s dropped for the first time since late-2015

Moods on the global equity markets are stunningly upbeat amid holiday’s thin trading. The US indices surged yesterday with both S&P 500 (US500) and Dow Jones (US30) adding almost 5% and Nasdaq (US100) pushing as much as 5.84% higher. It is worth to note that it was the biggest one-day surge on the US stock market since 2009. One can name two potential reasons behind increased bulls’ activity. The first one are words of the top White House economic adviser, Kevin Hassett. Hassett said that the US President Donald Trump won’t even try to fire Fed Chairman Powell and that he is hundred percent sure of that. As a second reason one can name report saying that the US negotiators team will travel to Beijing in the week starting 7 January to hold a round of trade talks with Chinese officials. While the latter offers some relief but no details the first reason mentioned above seems to be the key to yesterday’s rally. The latest rate hike delivered by the Federal Reserve saw Donald Trump criticizing the move what once again raised concerns that President’s patience on the central banker may be running out.

The latest decline on the US stock market got way out of control. US500 even entered a bear market territory for a moment (trading over 20% lower from the ATH). Nevertheless, as moods were boosted by White House advisor’s words the US equities experienced the biggest one-day rally in almost a decade. Source: xStation5

Returning to the topic of trade wars it should be added that apart from scheduling a meeting between negotiator teams the United States also agreed for delaying the tariff hike on the $200 billion of Chinese goods. Despite this upbeat news Chinese stocks were one of the few in the Asia-Pacific region that failed to rally during today’s Asian session. However, the decline on the Chinese stock markets was not absolutely out of the blue. According to China’s National Bureau of Statistics profits of the Chinese industrial companies dropped 1.8% YoY in November. This is the first decline since the end of 2015 and it clearly highlights the impact of the economic slowdown as well as the trade wars on the Chinese economy. Solid trade deal with the United States may be crucial for boosting moods of investors. Disappointing data from the Chinese economy put some pressure on the Antipodean currencies and in turn AUD and NZD are among the worst performing G10 currencies today.

Hang Seng (CHNComp) slumped today as a drop in profits of Chinese manufacturers scared investors. As the negative impact of the economic slowdown becomes evident, China needs trade deal with the United States to at least try maintain current pace of growth. Source: xStation5

Last but not least, let us recall that the US government shutdown is still on. President Trump did not backed down on his Mexico border wall promise and assured yesterday that he won’t do it. During a briefing with reports on Wednesday Donald Trump said that the United States will have the wall and that he won’t relent on the partial government shutdown unless funds for border security are secured. Trump, however, denied to comment whether he will accept a $2.1 billion funding proposed recently by the Vice President Mike Pence to Democrats.