Wall Street hits fresh high as global stocks rally

Sentiment boosted after China's pumps $115 billion into financial system. Photo / Getty Images

Global stocks rallied on the first trading day of the year with Wall Street notching fresh intraday highs after China's central bank moved to improve economic growth by pumping $115bn into the country's financial system.

The S&P 500 climbed as much as 0.6 per cent to a fresh high of 3,250.04 led by gains in technology stocks. A 1 per cent increase to 9,060.69 pushed the Nasdaq Composite to a record high as well. However, by late morning trade both benchmark indices had trimmed their gains to trade up 0.2 and 0.5 per cent respectively.

Meanwhile, Treasuries rallied with the yield on the US 10-year down 5.4 basis points to 1.863 per cent. Yields move inversely to price. And the dollar index, a gauge of the buck against a weighted basket of peers, climbed 0.4 per cent, eyeing its best day since early November.

Wall Street tracked gains in Asia and Europe.

Chinese stocks led the advance on New Year's Day, with the CSI 300 of Shanghai- and Shenzhen-listed companies rising 1.4 per cent to hit their highest level since February 2018. Hong Kong's Hang Seng index gained 1.3 per cent to reach its highest since July, just hours after anti-government protests ended in violence.

The upbeat sentiment came as the People's Bank of China on Wednesday cut the reserve requirement ratio for commercial lenders across the board by 50 basis points, to release about Rmb800bn ($114.9bn) of fresh liquidity into the banking system ahead of the Chinese new year later in January. Meanwhile, a survey showed continued growth in China's manufacturing sector.

Analysts said the PBoC's move, which had been expected, would reduce banks' funding costs and free up credit for private companies and small businesses.

European markets rose, with the Stoxx 600 adding more than 1 per cent. The stock market gains were driven by rallies in London's FTSE 100, Frankfurt's Dax 40 and Paris's Cac 40, which were up 1 per cent, 1.1 per cent and 1.2 per cent respectively. The German 10-year Bund's yield, which moves inversely to the price, slid 4.3 bps to -0.233 per cent.

Meanwhile, the iShares MSCI emerging markets ETF rose 1.4 per cent.

Chinese stocks, which in 2019 enjoyed their best performance in five years, were buoyed after US President Donald Trump this week said that he will sign a "phase one" deal alongside Chinese officials in Washington on January 15. That could signal a truce in the long-running trade conflict.

"I expect near-term positive momentum for Chinese equities as investors react positively to two catalysts this week: the RRR cuts and the signing of the phase one deal," said David Chao, Asia-Pacific global market strategist at fund manager Invesco.

Data released on Thursday indicated continued momentum in China's manufacturing sector. The Caixin-Markit China manufacturing purchasing managers' index survey for December came in at 51.5, firmly above the 50-point level that indicates growth in the sector. The reading was slightly down from 51.8 in November, the highest in three years.

"The [prospect of a] phase one trade deal between China and the US has sent out positive signals," said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group. "There is room for a recovery in business confidence, which should be able to help stabilise the economy."

China's manufacturers have been badly hit by the US-China trade war, but the Caixin-Markit PMI index highlighted an improvement in business confidence.

China's official manufacturing PMI, which surveys larger, state-owned companies, held steady at 50.2 in December, according to the National Bureau of Statistics.

In the US, fresh labour market data showed US job cuts fell to their lowest since July 2018 in December.

Investors now look ahead to the release of the minutes of the Federal Reserve's December monetary policy meeting as well as US earnings season, which kicks off in less than two weeks.

Written by: Alice Woodhouse, Mamta Badkar and Myles McCormick

© Financial Times 2019