U.S. equities mirrored gains in the European stock market on Monday, with technology stocks playing a pivotal role in propelling the S&P 500 up by more than 1.40%, while the Nasdaq 100 surged past 2%. However, Boeing and Spirit AeroSystems faced significant setbacks after Boeing’s 737 Max 9 model was temporarily grounded due to an incident involving an Alaska Air flight over the weekend. Despite this, overall market sentiment remained positive as the week commenced.
The optimism on Monday can be attributed to several factors. Firstly, U.S. politicians reached an agreement on a 2024 spending deal, a crucial step in averting a government shutdown. This development helped pull the U.S. 10-year yield back toward the 4% mark.
Additionally, Chinese authorities announced plans to lower reserve requirements to boost lending, along with a commitment to increasing liquidity through open market operations and the MLF. However, Chinese stocks failed to benefit significantly, with Shanghai’s Composite facing selling pressure following Zhongzhi’s bankruptcy filing and President Xi Jinping’s pledge to deepen China’s anti-corruption crackdown on finance, energy, infrastructure, and pharmaceuticals.
While Chinese stimulus measures may not substantially boost Chinese stocks, they are expected to fuel bullish bets on industrial metals such as iron ore and copper, driven by increased Chinese demand to support industries and real estate.
The anticipation of a soft CPI report from the U.S. on Thursday and the ongoing decline in crude oil prices have helped ease investors’ concerns about future inflation, despite rising shipping costs due to tensions in the Red Sea. American crude oil sank over 4% on Monday, reaching nearly $70 per barrel, following Saudi Arabia’s price cut for Arab Light crude to Asian customers. The negative momentum in oil prices persists, and a slide below $70 per barrel could pave the way toward the $65-67 per barrel range, which acted as strong support last year.
In the realm of inflation, the sluggish rebound of oil prices has alleviated worries, allowing the Federal Reserve (Fed) doves to maintain control of the market, which is somewhat positive for stock valuations.
In the foreign exchange market, the U.S. Dollar continues to face downward pressure, marked by a death cross formation on the daily U.S. Dollar Index chart, where the 50-day moving average crossed below the 200-day moving average. Despite being a lagging formation, there is a belief that the dovish Fed expectations might have been overly pronounced since the end of last year, leaving room for a potential positive correction in the U.S. Dollar.
Looking ahead, the EURUSD is expected to encounter resistance around the 1.10 level, while clearing the 140 support for USDJPY is anticipated to be challenging. The recent slowdown in Tokyo’s inflation from 2.7% to 2.4% in December suggests that the Bank of Japan (BoJ) may not be in a rush to exit its negative rate policy. While there are expectations for the BoJ to leave negative territory by April, uncertainties persist, and timing will be crucial.
In other markets, Bitcoin continues its upward trajectory, reaching $47,000 as Bitcoin ETFs move closer to approval, potentially attracting significant investments from finance giants like BlackRock. Conversely, gold has faced pressure since the start of the year due to rebounding U.S. yields and a stronger U.S. dollar. However, a potential reversal in gold’s negative trend could occur if Thursday’s U.S. inflation report is sufficiently soft, potentially pushing gold back above the $2050 level.