Stock markets stabilize as China hints at more rate cuts, ahead of Jerome Powell, UK budget

Financial markets were on the precipice of panic mode yesterday, but calm has returned as we await some key events. US stocks sold off on Tuesday, however, they have stabilized on Wednesday after a surprise comment from China’s PBOC governor, Pan Gongsheng. He said that there is room for the reserve requirement ratio to fall further, when asked how monetary policy could support China’s economic growth target. This has boosted the Hang Seng, which is higher by 1.8%, and US stock index futures are also expected to open higher later today.

Gold and Bitcoin back away from record highs

Bitcoin reached a record high on Tuesday, rising to $69,191. It sold off alongside US stocks late on Tuesday, however, it is making another comeback on Wednesday. The next key level is $70,000 and based on intraday movements in Bitcoin in recent days, this level could be easily surpassed if the upside momentum continues. The gold price made a stab at another record high on Wednesday and was above $2131 at one stage, however, it has pulled back as we wait for Jerome Powell’s testimony later on Wednesday. The gold price has been in a protracted uptrend, even though the market has scaled back global interest rate cuts. If Powell clarifies the Fed’s position during his Congressional testimony, then it may impact the gold price. Gold is seen as a hedge against inflation, so it may sell off if Powell errs on the hawkish side, if Powell is not as hawkish as the market expects, then we could see another record.

Alternative asset classes shine as Apple takes a hit

This is the week for alternative asset classes to shine, as stock markets deal with thorny issues. Cracks are starting to appear in some of the Magnificent 7 stocks, and Apple shares sold off nearly 3% on Tuesday. They are now down more than 9% YTD, compared with a 12% gain for the Magnificent 7 as a whole. Apple is facing the perfect storm: a lack of AI exposure (which may not be a bad thing in the long term, but could hinder stock market gains for now), rapidly falling China iPhone sales and EU fines. The stock price is also hovering near a key technical level at $170, a break through this level could open the door to the October low at $165. Apple seems like a hard sell right now, although it remains one of the world’s most valuable companies.

Legal and general fail to deliver, with another weak set of earnings

In Europe, stock indices have opened higher, although gains are small for now. China’s RRR news has calmed markets in Europe after Tuesday’s US stock market sell off. We don’t expect much conviction until we hear from Jerome Powell later today. UK stocks have also opened lower, with some notable underperformers. Legal & General reported results for 2023. Operating profit was £1.67bn, below the £1.8bn expected by analysts. There were lower than expected results for its pension unit, investment management unit and its retail business. Assets under management were 12% lower YoY, and profit levels are falling. This is not a good backdrop for the UK money manager and insurance specialist even though it managed to boost its dividend by 5%. It is hard to see how this can boost the stock price, which is down by more than 4% on Wednesday and is down 6.1% YTD.

Biden vs Trump

The US Presidential rematch of the century was all but confirmed on Super Tuesday, with Trump scoring a decisive victory over Nikki Haley . He won all states on the ballot, apart from Vermont, while Biden took all the states up for grabs. While the age of the assumed American Presidential candidates are a major issue for those of us with a Prime Minister half the age of Biden or Trump, the US electorate may see things differently. As the age of Presidents increases, the President is becoming more of a figurehead, with more youthful Senators and members of Congress doing the day to day work of government, especially under a Biden Presidency, under Trump it is harder to predict who does the business of government.

At this stage, we don’t think that the Presidential election will have a major impact on financial markets. Trump has threatened large broad-based import tariffs on all imports, but this could be Trump bluffing. Added to this, it is too early to really know if the US electorate is ready for a second Trump term, after a socially divisive four years from 2016-2020, his court cases and the fallout from the insurrection after the last Presidential election. It’s a long time until the election in November, and much could change between now and then.