Daily Wrap Up 17 January 2022

17 Jan 2022 04:02 PM

China rate cut boosts sentiment

Stocks in Europe are up on the session as The People’s Bank of China cut the borrowing cost on 700-billion-yuan worth of one-year medium-term lending facility loans to 2.85%. The move by the Chinese central bank comes as it was confirmed the Chinese economy expanded by 4% in the last quarter of 2021, which was a drop off from the 4.9% growth registered in the preceding three months. It was the weakest quarterly growth reading in 18 months. Countries around the world are largely experiencing a cooling in their growth as the post pandemic boom is running out of steam, but it is worth noting that China was already moving down a gear before the pandemic struck. The latest retail sales data from China were disappointing too as the report came in at 1.7% - the lowest in 15 months – it speaks to dwindling consumer appetite.

The FTSE 100 traded above 7600 for the first time in nearly two years. The London market is enjoying a broad rally as banks, construction, energy, pharma and tobacco stocks are up on the day. It is a similar situation in the eurozone as the DAX and the CAC are showing solid gains too. The New York Stock Exchange remains closed today as the US celebrates Martin Luther King Day. Volatility is low as many Americans are on holiday.

Last week, the US dollar took a knock as it fell to a two-month low on Friday morning, but it finished higher, and it is building on those gains today. The upward move in the dollar comes as the US 10-year yield moved back above 1.79%. Lately there has been a lot of speculation the Federal Reserve might look to lift interest rates in March and when Wall Street is fully back to business tomorrow, it is likely that bond yields will be in focus.

China is one of the biggest importers of industrial metals in the world, so the news the Chinese central bank lowered the medium-term lending rate has boosted silver, copper, and platinum. Gold is a little higher today as well even though the dollar is firmer. Robust levels of demand, a relatively squeezed supply from OPEC+, and political tension between Russia and Ukraine have nudged up Brent crude.

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