A new year but the same results as a rally that had characterised much of 2019 continued into the first day of January, seeing global bourses break yet more records. News that China’s central bank was preparing to release another $115 billion yuan to prop up a slowing economy, coupled with a raft of strong economic news, ensured that investors entered 2020 in risk-on mode.
Although China’s factory activity expanded at a slower pace during December as new orders softened, investors took heart from production figures showing a continued growth trajectory and robust business confidence. Both east Asian and western markets enjoyed a strong rally towards the end of last year as a Sino-US trade deal looked to finally be in the offing. Indeed, it was the US that also helped spur a new year rally as data showed that the number of Americans filing for claims for jobless benefits edged lower over the previous weeks, helping to offset worries that the US labour market may be trending downwards.
In response, the MSCI’s gauge of world stocks jumped 0.8% to an all-time high, led firstly by moves in London and Frankfurt, rising 0.82% and 1.06% respectively, and then the tech heavy NASDAQ which hit a record high after flying 1.33%.
The euphoria of the new year appeared to stall on Friday with news that a US air-strike at a Baghdad airport had killed a high-profile Iranian military leader. This led to risk-assets selling off and safe-haven government bonds and gold rallied. The biggest gainer however was oil, with the black gold’s price up over 4%.
The week ahead
The first full week of the new year brings with it a busy period, especially for central bankers, as officials from both the Bank of England and the US Federal Reserve are due to give press conferences during the start of the week.
Ben Broadbent, Deputy Governor for Monetary Policy at the Bank of England is due to participate in a panel discussion titled "Monetary Policy Frameworks in a World of Low Interest Rates" at the American Economic Association's annual meeting, in San Diego. Such addresses are usually followed by an unscripted Q&A session and can make for interesting listening, especially as Broadbent has a direct say on domestic interest rates due to his position.
Attention will switch across the Atlantic on Tuesday as the US Institute for Supply Management releases US Non-Manufacturing PMI. With the index having been firmly in expansion territory for the past 18 months, analysts will be hoping the trend continues as we enter the new year. A leading indicator of economic health, businesses react quickly to market conditions, with their purchasing managers holding perhaps the most current and relevant insight into their respective company's view of the economy.
The end of the week is wrapped up with US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, the employment data will be accompanied by Average Hourly Earnings, allowing us to gauge how inflation may manifest in the com.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in December 2019.