Strong Rebound In Chinese Stock Market Continues

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Major indices in the US reached record highs on Wednesday and retraced after that. Defensive sectors performed better but cyclical sectors dipped slightly. The technology sector was pressured down as news from Apple highlighted supply chain disruptions which will affect revenues and Aptiv, the auto Parts Company also guided down on revenues due to the Covid-19 virus. The yield on the 10 year US treasury fell to its lowest level in a month and the 30 year yield reached a record low. 


The Chinese Central Bank issued its quarterly Monetary Policy Report in which it is estimated that the magnitude and duration of the virus on the economy will be limited. The central bank cut interbank lending rates, reduced medium term lending rates to its lowest level since 2017 and also cut the prime lending rate.


Equity indices in China reached their highest level in a month with many securities rising by 10%, the highest daily limit on Thursday; the Shanghai Composite index is making a V-Shaped recovery (chart above). IHS Markit’s flash composite purchasing managers’ index (PMI) for the US fell below 50 in February and is a sign of the first contraction in private sector activity since 2013. However the absence of a rebound would be surprising as supply chain disruptions will be temporary. In the Eurozone, there were further signs of a rebound in growth as a faster than expected bounce in business activity helped equity indices remain close to their record highs.


The services component of the PMI rose above 50 and pushed the composite index to 51.6 in February. These are encouraging signs for the Eurozone but the situation in the manufacturing sector remains blurred as the improved reading in Manufacturing PMI was not driven by higher demand. On Brexit, negotiations between the EU and the UK on the withdrawal agreement will resume this week. It is likely that this may increase volatility in the pound. 

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24 February 2020

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Analysts’ Estimates For US Corporations Remain Bullish

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