JASPER’S MARKET SQUAWK 06-02-2024

RBA Holds Rates, China’s National Team Step Up

Market Movers:

• US dollar nears three-month peak, adjusting to Fed’s rate cut scepticism.
• Australian dollar gains post-RBA’s rate decision.
• China’s state fund boosts ETF investments, supporting stock market after plunge.
• Wall Street indexes dip as Fed Chair signals no imminent rate cuts.

Econ Calendar:

• Euro zone retail sales data for December.
• UK S&P global construction PMI for January.
• Germany industrial orders for December.
• Speeches by Fed’s Mester, Kashkari, and Collins.

What’s Happening

The US dollar has surprised many by nearing a three-month peak, despite earlier expectations of a decline. This shift reflects growing market scepticism towards the Federal Reserve’s likelihood of implementing aggressive rate cuts this year.

The Australian dollar, on the other hand, has seen an uptick following the Reserve Bank of Australia’s (RBA) decision to hold rates at a 12-year high, coupled with hints that further rate hikes could be on the horizon to tame inflation.

In an effort to stabilise its stock market, China has taken concrete steps through its state fund, Central Huijin Investment, by expanding investments in exchange-traded funds (ETFs). This move is part of a broader strategy by the so-called “national team” of Chinese state-backed investors to inject confidence into the market, especially after recent declines.

While these interventions have provided some immediate relief, leading to a rebound in China’s blue-chip index and the Shanghai Composite Index, analysts remain cautious about the sustainability of this support. The government’s encouragement for institutional investors to increase stock investments and for companies to engage in share buybacks further illustrates China’s commitment to shoring up its financial markets.

Wall Street experienced a downturn as investors digested comments from Federal Reserve Chair Jerome Powell, who firmly pushed back against any speculation of imminent rate cuts – notably during his ‘60 Minutes’ TV interview. This cautionary stance, highlighted by the resilience of the US economy and the need for more evidence of a sustainable downtrend in inflation, has led to a re-evaluation of expectations for monetary easing.

The equity markets, which had been riding high on previous optimism, saw major indexes like the Dow Jones, S&P 500, and Nasdaq retreat as the reality of continued high-interest rates settled in.

Chart of the Day

Here are the top 15 US companies by capitalization that will release earnings this week.

Source: Matteo Marchetti, KTM Market Analyst

For all the latest market developments follow Matteo @MMTradingKTT and Key to Markets @keytomarkets on Telegram