Markets looking ahead
The New Year’s stock market recovery rally we wrote about last week has continued, to the surprise of many who are observing unprecedented political shambles on either side of the Atlantic. The UK appeared to be descending into political chaos, with a disorderly Brexit seemingly only 10 weeks away. Meanwhile, the US economy suffers from the longest government shutdown on record. So how can it possibly be that investors are willing to return to risk asset markets?
US turning over but not going under
The US economy was last year’s star of the show. The stimulatory effects of Donald Trump’s tax cuts added to already strong consumer demand, which meant the world’s largest economy led the pack in the developed world, while emerging markets suffered under the weight of a Chinese slowdown, fears over trade tariffs and a rising US$. But despite its roaring 2018, analysts have become wary of the US’ prospects for this year, generally predicting a slowdown (and in some cases even recession).
China hands its consumers a big red packet
The People’s Bank of China (PBoC) injected a staggering RMB570bn ($84bn) into its banking system on Wednesday, the largest single day liquidity boost on record. This was followed by Thursday’s sale of RMB250bn in 7-day repos, and RMB150bn in 28-day repos, resulting in a further net liquidity injection of RMB380bn ($56.2bn) via its open market operations. That brings this week’s net liquidity boost to RMB1.14tn at the time of writing. If the bank sticks to trend on Friday, we’re in for a record-breaking week too.
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