Published: February 10th, 2020
– The division between the Republicans and the Democrats probably is at its deepest point now. It is so ravine-like that even before the House Speaker submitted the articles of impeachment against President Trump to the senate, the talk on the street was that the Republicans’ majority would prevail over reason. And, this argument came to pass. Now, the markets are returning a verdict of their own, probably the only good thing coming out of the debacle, as some pundits say...
Wednesday, February 5, 2020, was a great day for the markets. Three seemingly unrelated events occurred that sent the stocks rallying. First, China kept its end part of the bargain and slashed tariffs on some $75 billion worth of U.S. imports. Then, the Senate found President Trump innocent of the two articles of impeachment that Congress had presented before it. Lastly, the ADP report came out with figures towering well above the analysts’ projections.
The U.S. Senate voted to absolve President Trump of all charges. The House Judiciary Committee had approved two articles of impeachment; abuse of power and obstruction of Congress.
The Trump trial is now over and he can now concentrate on his reelection with an improved chance at a second term in the elections slated for November 3. The news has boosted the mood of the market, and the prospects of a possible win should help increase the demand for U.S. equities even further.
Trump’s acquittal ends months of political bickering that has characterized the Capitol Hill for the past few months. Though the country moves on, the political risk will most likely emerge when the Democratic caucuses get fully underway.
Already, the Iowa caucus has hoisted Pete Buttigieg and Bernie Sanders on top; an outsider and a radical frontrunner respectively. If the trend continues then expect Wall Street to exercise caution. Both an outsider and a radical presidential nominee are not great for a stable market situation. The reactions of the markets may not be very positive for any of these two.
When trading began on Thursday morning, the major futures quickly gained 0.4% in just the first hour of trade. The U.S. 10-year bond yield rose to 1.6761%, an indication that more capital was flowing into the stocks tank to celebrate the win.
Stocks in Asia jumped as well. The Nikkei gained 2.86% to clock a two-week high as the Hang Seng and Shanghai Composite rose 1.96% and 0.99% respectively. The ASX was also up 1.05% despite Australian retail sales falling about 0.5% month-on-month in December.
Even the dollar surged ahead of both the euro and the Sterling. At the close of business on Wednesday, the euro had slid to 1.10 against the greenback while the pound was selling at $1.30. The chief market strategist as AxiCorp thinks that the dollar’s rise against the two currencies is because of the impressive ADP report. The data shows that the U.S. economy created 291,000 private jobs in January on the backdrop of another 157,000 positions created in December.
The positive developments mentioned above added fuel to the rebound momentum seen in almost all the global stocks. Earlier in the week, the stock markets had dived following news that China was not putting adequate efforts to curb the spread of coronavirus. These reports caused investor panic. However, unconfirmed news of a possible cure and vaccine of the virus has helped to restore market confidence.
As a result, both the Dow Jones Industrial Average and the benchmark S&P 500 surged 0.4% on Wednesday. These increments were followed by even better performances on Thursday with the former climbing to 1.7% while the latter settling at 1.1% at the close of the day, which is a two-week record. The Nasdaq also rose some 0.43% to consolidate its gains close to a new record.
While Wall Street was on a rollercoaster ride, markets elsewhere were just as gassed up. The London FTSE 100 gained 0.3% to stand at 7,505 while Frankfurt’s DAX rose 13,572, an increase of 0.7%. The France CAC 40 rose by a similar margin to stand at 6,026.
The price of benchmark U.S. crude also rose by 30 cents to stand at $51.05 a barrel on the NYME while Brent crude added $1.32 from the previous trading session’s price.
As part of the Phase One trade deal signed earlier in January, China announced that it will slash the tariffs by half on some $75 billion worth of U.S. imports. This announcement comes in the wake of the Orient nation seeking to increase its uptake of American goods.
The move will help Chinese companies to consolidate their struggles and emerge from the clutches of coronavirus. Besides, it may align the road to further negotiations between China and the U.S.
The move by China seems to have fueled the risk appetite of the market as more capital was seen streaming into the equities and assets such as Gold. Spot Gold closed Thursday trading sessions at between $1,552 and $1,558 per ounce.
The markets may seem great following the two positive developments but the effects of coronavirus are will still weighing down progress. The anti-virus efforts undertaken by China are still uncertain. And, the vast majority of restaurants, stores, and cinemas remain closed to minimize the risk of further infections.
China, however, has responded with a domestic model stimulus. It is cutting on value-added-taxes while at the same time offering low-interest loans. The Chinese government hopes that these measures will help businesses to endure the downturn caused by the virus.
The acquittal of president Trump by the Senate is great news for the markets. It has turned around the fortunes of markets globally. Now that China is wholly on board the Phase One deal and the American job market seems rejuvenated, the shape of the global economy may be on its way to recovery.