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When do you start to worry about Chinese stimulus? - Market Analysis by Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

When do you start to worry about Chinese stimulus? - Market Analysis by Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank
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Table of contents

  1. Connecting the dots 
    1. BoC calls the end of tightening, ECB next to speak. 

       

      When do you start to worry about Chinese stimulus? 

      By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank 

      The stock rally continued on both sides of the Atlantic on Wednesday; the technology and chip stocks remained in the driver seat. Sentiment in Europe was bolstered by an almost 9% rally in ASML on news that their orders more than tripled last quarter. Now, there is a catch. A third of the $10 billion dollar worth of orders came from China as Chinese companies rushed to buy these machines by the end of last year before the US and Dutch chip ban came into effect. But even if the Chinese demand will fade away, ASML says that it expects its sales to remain steady thanks to AI demand.. 

      As such, the ASML news also boosted the stock prices of our favourite AI plays. Nvidia hit another record yesterday, TSM extended gains, Microsoft was worth $3 trillion for some time. The S&P500 and Nasdaq 100 hit a fresh record, and Netflix – which has nothing to do with AI, but which was just cheering its 13-mio new subscribers for the latest quarter - jumped 10%.  

      In summary, all goes well for those who are in the technology boat sailing north. For the rest, skepticism best describes how they feel about an unsustainable rise in valuations.  

      Tesla misses, Intel next. 

      Tesla missed estimates in its latest quarterly earnings report and warned that its EV sales growth will be 'notably lower' and that the numbers will suffer until the company comes up with a cheaper model. The series of price cuts weren't enough to bolster demand in a way to keep the company smiling and profits rising – sufficiently. As such, Tesla refused to offer a specific growth target and its share price took a 6% hit in the afterhours trading. Intel is due to report its earnings today.  

      Connecting the dots 

      The Chinese are serious about bolstering their economy and they look like they are getting to a place where they are ready to do whatever it takes to reverse the slowing trend. 

      In addition to a series of market stimulus news, the People' Bank of China (PBoC) announced yesterday that it will cut the reserve ratio for the banks by 50bp from February to release more liquidity to bolster stock valuations The latter will free up to an additional trillion yuan, which equals $139bn US dollars. 

      Will it help? Well, we will see. The good news is, if it doesn't, the Chinese will continue until it does.  

      The CSI 300 finally sees some positive reaction, stocks in Hong Kong are up 10% since Monday, American crude is drilling above the $75pb per barrel and copper futures – which are a gauge of global growth – also seem gently convinced that the Chinese will put all their weight – all they need to – to make things better.  

      But note that China's supportive policies may not echo well across the developed markets' central banks, because the Chinese stimulus – if successful – should boost global inflation and interfere with DM central banks' plans to loosen policies.  

      BoC calls the end of tightening, ECB next to speak. 

      But until we see concrete results from Chinese measures, softer policies remain the base-case scenario for the Federal Reserve (Fed) and the other major central banks (except Japan). In this context, the Bank of Canada (BoC) kept its rates unchanged at yesterday's meeting and called the end of rate hikes. The European Central Bank (ECB) will meet today and will certainly vehicle the same message - that policy tightening is over. But that's not enough. 

      When it comes to the ECB, what investors want to know is WHEN the ECB will start cutting the inteerest rates. If we had this conversation two weeks ago, I would say that the ECB would push back on expectations of premature rate cuts. But after having heard Christine Lagarde say that the first rate cut could come in summer, I am more balanced going into the meeting. Inflation has come lower – but we saw an uptick in the latest figures. The rising shipping costs and the positive pressure in oil prices mean that upside risks prevail. Yet the slowdown in European economies calls for lower rates. Released yesterday, the Eurozone PMI figures showed that aggregate activity remained in the contraction zone for the 8th straight month and slow down accelerated in January – except for manufacturing.  

      A hedge fund called Qube apparently built a $1 bn short position against German stocks, and Goldman Sachs says that a Trump presidency would increase risks for European businesses, and economically sensitive pockets of the market, like the German industries, would be the most exposed.  


      Ipek Ozkardeskaya

      Ipek Ozkardeskaya

      Ipek Ozkardeskaya provides market analysis on FX, leading market indices, individual stocks, oil, commodities, bonds and interest rates.
      She has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked in HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist in Swissquote Bank. She worked as Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020.
      She is passionate about the interaction between the economy and financial markets. She has been observing and analyzing a wide variety of relationships between the economic fundamentals and market behaviour over the past decade. She has been privileged to live and to work in the world's most exciting financial hubs including Geneva, London and Shanghai.
      She has a Bachelor's Degree in Economics and a Master's Degree in Financial Engineering and Risk Management from the University of Lausanne (HEC Lausanne), Switzerland.


      Topics

      Teslas&p500inflationoil pricesintelmicrosoftnetflixnasdaq 100interest ratescsi 300christine lagardenvidiaCentral Bankseurozone pmiCopper Futureschip stocksglobal growthasmlcontractionEuropean Central Bank (ECB)quarterly earningsshipping costspolicy tighteningChinese demandPeople's Bank of China (PBoC)Federal Reserve (Fed)technology stocksstock rallyAmerican crudeeconomic risks.AI demandUS and Dutch chip banTSMEV sales growthmarket stimulusreserve ratio cutliquidity releaseHong Kong stocksBank of Canada (BoC)German stocksTrump presidencyEuropean businessespFactors influencing positive sentiment in stock marketsparticularly in the technology sectorconsequences for ASML resulting from increased demand from Chinese companies for their machines before the US and Dutch chip banwhy shares of artificial intelligence companies like Nvidiaand TSM are experiencing growthhow Tesla's quarterly results affected the markets and what prompted pessimism about electric vehicle sales growthexpectations for Intel's results based on the information presented in the articlesteps taken by the People's Bank of China (PBoC) to stimulate the economy and potential effects of the reserve requirement cutreactions triggered by Chinese economic stimulus on markets such as CSI 300Hong Kong stock exchangeand commodity priceshow China's stimulus policy may impact global inflation and the plans of central banks in developed countrieswhy the Bank of Canada (BoC) announced the end of rate hikes and the European Central Bank (ECB) is considering a rate cutmain challenges facing the ECB in making decisions about interest rates amid economic slowdown in the eurozone.
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