Wall Street Advanced After China Reopening to Ease Supply Inflation

Barry Adams
16 Jan, 2023
New York City

Stocks extended rally on the first day of new week and investors focused on the reopening in China and easing of bond yields in the U.S. 

Tech stocks rally supported the market advance on the hopes that the Federal Reserve may slow future rate hikes and may even consider pausing rates earlier than previously expected. 

The ending of zero-covid policy in China has raised hopes of smoother functioning of the supply chain and weakened inflation pressure as more medium and small businesses reopen after three years of stringent lockdowns. 

China's three largest cities, Beijing, Shanghai and Shenzhen, are estimated to have achieved herd immunity at above 80% infection rates.

But virus infections are expected to flare-up in rural areas in the next few weeks as more than 250 million migrants return home ahead of the Lunar New Year.   

 

Tech Stocks Extend U.S. Market Rally

Benchmark indexes extended recent gains on the hopes of rate increase slowdown and easing of supply chain pressures. 

The S&P 500 index increased 0.4% to 3,999.09 and the Nasdaq Composite index added 0.7% to 11,079.16. 

Crude oil advanced on the hopes of rising demand from China but natural prices struggled amid warmer-than-usual weather in the U.S. and Northern Europe.  

Crude oil decreased 74 cents to $79.12 a barrel and natural gas futures rose 20 cents to $3.62 a thermal unit.

The U.S. Treasury yields retained a slight upward bias after two weeks of decline but the bond market adjusted to slowing inflation scenario in the U.S. and the Euro Area. 

The yield on 2-year Treasury notes inched higher to 4.24%, 10-year notes rose to 3.51% and 30-year Treasury notes advanced to 3.62%. 

 

European Markets Rise On Weakening Inflation

European markets advanced and extended 9-month highs after positive sentiment prevailed. 

Germany's wholesale inflation index eased to 12.8in December from 14.9% in November, Destatis or the Federal Statistics Office said in a report Monday. 

From the previous month, wholesale prices eased 1.6% in December.  

In 2022, wholesale prices rose 18.8% after energy prices soared 50.1%. 

The DAX index  increased 0.3% to 15,124.45, the CAC-40 index advanced 0.4% to 7,049.94 and the FTSE 100 index rose 0.2% to 7,860.46. 

The euro inched higher to $1.082, the British pound increased to $1.2205 and the Swiss franc held steady at 92.62 U.S. cents. 

Natural gas prices dropped 15% and extended this year's loss to 40% €54.15 per MWh. 

Brent crude oil eased 92 cents to €82.36 a barrel. 

 

Japan's Ultra Low Rates Policy Under Pressure 

Tokyo stocks were under pressure after wholesale prices accelerated in December and investors awaited the rate increase on Wednesday from the Bank of Japan after the two-day meeting.  

Wholesale prices accelerated in Japan in December, the Bank of Japan reported today. 

The Corporate Goods Price Index increased 10.2% in December after rising at a revised annual pace of 9.7% in November. 

While the import price index eased to 22.8% in December from 28.0% in November, domestic good prices are still rising at elevated levels.   

In 2022, wholesale prices rose at a faster pace of 9.7% after rising at 4.6% in November, the fastest pace since record keeping began in 1981. 

The Nikkei index declined 1.1% to 25,822.32 and the yen traded up to 128 level against the U.S. dollar, the strongest level in seven months on the rising government bond yields. 

 

China's Home Price Weakness Persists 

Housing market weakness persisted for the sixteenth month in a row in December, the National Bureau of Statistics reported Monday. 

New home prices eased 0.25% in December and existing home prices declined 0.5% 

Of the 70 urban markets tracked by the government agency, the number of cities reporting new home price decline increased to 55 in December from 51 and existing home price decline increased to 63 cities from 62 in November.   

China's reopening is expected to increase transaction volume and improve market confidence and the announced government measures are also likely to support completions of unfinished projects.  

The Shanghai Composite index increased 1.0% to 3,227.59 and the Hang Seng index added 8.06 points to 21,746.72. 

 

India Wholesale Inflation Eased In December 

The Sensex index fell 0.3% to 60,092.97 after wholesale inflation dropped to the lowest level since February 2021. 

Wholesale inflation eased to 4.95% from a year ago in Dec from 5.85% in Nov, the lowest level since February 2021. 

On a monthly basis contraction deepened to 1.1% from 0.5% in the previous month.

The Indian rupee held steady at 81.62 against the U.S. dollar.