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Jan 2, 2020

Tech leads U.S. stocks to opening-day 2020 rally

China's reserve ratio cut fuels market rally

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Stocks started the year on the front foot, building on strong gains for many asset classes in 2019 as investors cheered the latest policy move by China’s central bank to support its economy. Treasuries and the dollar strengthened.

The S&P 500 jumped 0.8 per cent to a record on the year’s first trading day, with megacaps Apple, Alphabet and Nike notching all-time highs. It was among the best starts for U.S. stocks in the past decade, though first-day performance has virtually no bearing on how the year plays out. Tech shares led gains, with AMD surging 7 per cent after an upgrade. Small caps underperformed, with the Russell 2000 sliding 0.1 per cent.

The Stoxx Europe 600 Index advanced as every sector finished in the green. Gauges in Hong Kong and Shanghai jumped more than 1 per cent after the People’s Bank of China said it will increase the supply of cheap funding to banks, in line with market expectations.

“You’ve had a good liquidity-driven momentum-type rally toward year end and that momentum is carrying on in and of itself,” said Kevin Caron, a senior portfolio manager at Washington Crossing Advisors.

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    The euro fell as data showed the region’s manufacturing downturn deepened in December. The dollar stayed higher as U.S. jobless claims dropped to a four-week low, while the pound weakened following its best quarter in a decade.

    After a stellar 2019 across most major assets, focus now shifts to the year ahead. Thursday gave investors the latest read on Chinese manufacturing, with the Caixin PMI dipping slightly from its November level but remaining well in the expansionary zone. On the trade front, U.S. President Donald Trump earlier this week said he expects to sign the first phase of a deal with China on Jan. 15, though Beijing has yet to confirm the date.

    “Good start to the year -- China gave the markets a little jolt to start the year with a liquidity injection into their market,” said Chris Gaffney, president of world markets at TIAA. “The message is that central banks are going to continue to help sustain growth or actually try to generate more growth in the markets and interest rates will stay low.”

    Investors are also keeping an eye on geopolitical tensions, including in North Korea, where Kim Jong Un said he was no longer bound by his pledge to halt major missile tests and would soon debut a “new strategic weapon.” In Baghdad, an Iran-backed Iraqi militia broke up its encampment outside the U.S. embassy after an attack on the compound threatened to spiral into a broader confrontation.

    Elsewhere, crude oil pared an earlier advance, while gold climbed. The Thai baht fell as much as 1.8 per cent overnight, its biggest drop since 2007, amid speculation the Bank of Thailand could be intervening to curb the currency’s strength.

    Here are some events to watch for this week:

    Federal Open Market Committee minutes will be released on Friday.
    U.S. ISM manufacturing is due Friday. The Institute for Supply Management’s PMI is forecast to show a contraction for a fifth straight month.

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    These are some of the most recent moves in major markets:

    Stocks

    The S&P 500 Index jumped 0.8 per cent to 3,257.90 as of 4:02 p.m. New York time, the highest on record with the largest climb in three weeks.

    The Dow Jones Industrial Average surged 1.2 per cent to 28,869.14, the highest on record with the biggest jump in almost four weeks.

    The Nasdaq Composite Index surged 1.3 per cent to 9,092.19, the highest on record with the largest jump in almost 12 weeks.

    The MSCI All-Country World Index jumped 0.7 per cent to 569.31, the highest on record with the biggest increase in almost four weeks.

    Germany’s DAX Index surged 1 per cent to 13,385.93, the highest in more than two weeks on the largest jump in more than four weeks.

    Currencies

    The Bloomberg Dollar Spot Index jumped 0.2 per cent to 1,187.38, the first advance in more than a week and the biggest increase in almost two months.

    The euro declined 0.4 per cent to US$1.1169, the weakest in a week on the largest decrease in almost two weeks.

    The Japanese yen appreciated 0.2 per cent to 108.55 per dollar, the strongest in more than six weeks.

    The British pound decreased 0.9 per cent to US$1.3136, the largest dip in more than two weeks.

    Bonds

    The yield on two-year Treasuries declined less than one basis point to 1.57 per cent.

    The yield on 10-year Treasuries decreased four basis points to 1.88 per cent, the largest tumble in almost three weeks.

    Germany’s 10-year yield decreased four basis points to -0.22 per cent, the biggest tumble in a month.

    Britain’s 10-year yield fell three basis points to 0.793 per cent.

    Commodities

    West Texas Intermediate crude advanced 0.1 per cent to US$61.15 a barrel, the biggest gain in a week.

    Gold strengthened 0.7 per cent to US$1,528.38 an ounce, the highest in more than 14 weeks on the largest gain in a week.

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