Mon 7 Jan 2019
US stocks rallied on last Friday after two positive pieces of news for the market. The first one was where the US Labour Department said the U.S. economy added 312,000 jobs in December, which blew past an expectation of 176,000 jobs. The second piece of news was where the US Federal Reserve Chairman Jerome Powell said the central bank will be patient in raising rates, quelling fears of tighter monetary policy in the near future.
The Dow Jones Industrial Average closed 746.94 points higher at 23,433.16, or 3.3 percent, and briefly rose more than 800 points. The S&P 500 rallied 3.4 percent to 2,531.94, with the tech sector gaining more than 4 percent. The Nasdaq Composite climbed 4.26 percent to 6,738.86. This was a rebound from Thursday’s plunge, which was triggered by a massive drop in Apple’s stock.
US stocks took off after Powell hinted the central bank could pause its rate hikes, something this beaten-down market was waiting for.
“As always, there is no preset path for policy,” Powell said. “And particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”
Powell added the central bank would not “hesitate” to change its balance-sheet reduction plan if it was causing problems. Fears that the Fed may be making a policy error by tightening too fast have contributed to the recent skittishness in financial markets.
Markets worldwide are likely to be encouraged by the news that China and the U.S. is also trying to strike a deal on trade. China’s commerce ministry said the U.S. and Chinese would hold vice-ministerial level negotiations over trade in Beijing on Jan. 7-8.
In between, China said it will cut banks’ reserve requirement ratios (RRRs), taxes and fees according to Premier Li Keqiang on Friday, as the world’s second-largest economy shows further signs of cooling.
The measures included targeted RRR cuts aimed at supporting small and private companies, Li was quoted as saying in a statement.
According to a news website, China had slashed its reserve requirements four times in 2018 to free up more funds for banks to lend and analysts expect three to four more cuts this year starting in the current quarter.
Beijing will also step up “counter-cyclical adjustments” of macro policies and further cut taxes and fees, Li said, largely reiterating previous policy pledges.
The largely positive news from both the US and China governments are likely to shore up global markets after the plunge in late 2018.
However, are these opportunities to buy in substantially or are just bull traps for common traders?
A look at the state of the global markets reveal that many have turned up and break their critical levels but there is a catch for those unawares.