Asia followed suit, extending the recovery seen in the last couple of sessions to end last week. Equities rose as did oil prices. The MSCI Asia-Pacific Index rose 1.2%, and the Nikkei posted its first back-to-back gains this year. Brent firmed, with the March contract trading to $32.80.
Whatever force had gripped the global capital markets since the start of the year has been broken. This simple characterization is rich. It is not clear if, or what, macroeconomic considerations were driving the markets.
The markets had taken the unsurprising Fed rate hike in mid-December in stride. The dramatic moves in the market did not begin until this year. Some have suggested China was at the crux of it, but the global impact seemed out of proportion.
ECB President Draghi made clear at yesterday’s press conference that new risks have materialized and the central bank’s job to reaching its mandate is far from over. Current efforts may not suffice to achieve its legal prescribed mandate. Monetary policy will be reviews and reassessed at the next meeting in March, when new staff forecasts will also be available.
China served as a major topic of discussion and a primary source of concern at the World Economic Forum. However, several speakers went to great lengths to defend Asia’s largest economy and to point out that it is still moving toward strong growth and a “manageable” economic transition.
No Cliff
For years, the European Union (EU) has imposed tariffs on Chinese-made screws, nuts, and bolts made of either iron or steel. However, on Monday, China won an appeal in a seven-year legal battle before the World Trade Organization, which found that those tariffs are illegal. Although China has never before sought sanctions from the WTO, many believe the length of this battle may cause the trade giant to make a claim for compensation.
Like a car ignition that finally catches after several attempts, the global markets are building on the recovery seen in North America yesterday. Asian stocks rallied, with the Nikkei leading the way with a 5.9% rally. More modest 1.25% gains from the Shanghai Composite, allowed Chinese stocks to finish the week with small gains. Australian, Korean, and Thai shares have also finished higher on the week. European bourses are higher, and the Dow Jones Stoxx 600 is up 2.5%. Not only is it poised to post a weekly advance, but so are most of the major markets, excep
The World Economic Forum (WEF) published its annual Global Risks Report in the run up to its annual meeting in Davos. Food and water crises, energy price shocks, biodiversity loss and ecosystem collapse, extreme weather events and failure of climate change mitigation and adaptation, it said, are the biggest threats facing society.
There have been two important reforms announced, one in the EU and other in the IMF. Many investors may have missed due to the carnage in the markets.
While the economic challenges that Europe faces remain potent, the refugee problem appears more pressing. Tomorrow the flash January PMIs from the Eurozone expect to slip a little, but the composite will likely remain near the multi-year high matched in December. This suggests growth is steady.
I
ECB President Draghi has sent the euro back down into the lower end of the recent range as he gave a strong signal that additional action could come as early as March, the next meeting. The euro had approached the upper end of its range yesterday and now is slipping through $1.08.
Draghi embraced and defended the ECB’s action but clearly and unequivocally opened the door wide for more action. By indicating, that rates will remain at current low level of lower is a signal that the -30 bp deposit rate has not exhausted room for more cuts.
The Asian equity markets failed to retain the early gains that had at least partially been fueled by the US equities recouping half of their losses. The MSCI Asia-Pacific Index lost about 1.7% and finished at new 3.5 year lows.
European markets are posting minor gains, with the Dow Jones Stoxx 600 up about 0.25% after hitting 15-month lows yesterday. The gap created by yesterday’s lower opening has not been entered. This is also true of several national bourses, including Germany’s DAX and the French CAC.
