Global Markets Surge on Monetary Stimulus

An amazing event is about to happen and could actually unfold before traders leave for the US Thanksgiving Holiday. The Dow Jones is within striking distance of the 18,000 level. Wall Street ended the week with record highs on the Dow and S&P 500, extending gains for the week. Investors hailed news of an interest rate cut in China and the possibility that Europe’s central bank will step up stimulus efforts in the region. Energy stocks were among the big gainers, getting a boost from a rebound in oil prices.

On Tuesday, the US Commerce Dept. releases third-quarter GDP. US markets will be closed for Thanksgiving Day. Revisions to GDP estimates are expected to be slightly downward; from 3.5 per cent to 3.3 per cent growth on an annualized basis a surprise print could send the US dollar and the Dow to set new records.  The U.S. holiday shopping season begins with Black Friday, the day after Thanksgiving, which is traditionally one of the biggest shopping days of the year.

In the eurozone inflation and labour market data are to be released on Friday. As a result of low oil prices, weak nominal wage growth and the fact that depreciation in the euro is yet to feed into higher import prices, the consensus is for inflation to fall to 0.3 per cent from 0.4 per cent. Unemployment in the monetary union is expected to remain stable at 11.5 per cent.

Europe stocks climbed to a two-month high as ECB President Mario Draghi reiterated his commitment to raising inflation as fast as possible, and China cut interest rates. China’s central bank cut the interest rate on its one-year loans to financial institutions by 0.4 of a percentage point to 5.6 per cent. The country’s annual rate of economic growth slowed to a five-year low of 7.3 per cent last quarter. The move by the central bank came a day after the release of data showing that Chinese manufacturing activity fell to a six-month low in November. London’s FTSE climbed 1.08 per cent to close at 6,750.76 points, while the DAX 30 in Frankfurt rose 2.62 per cent to 9.732.55 and Paris’s CAC 40 gained 2.67 per cent to 4,347.23. Madrid shot up 3.05 per cent, Milan 3.88 per cent and Athens 3.67 per cent.

 “At the same time, demand from emerging economies had been really driving demand for resources over the past few years. Slowing growth has been weighing on our resource sector in Canada and that explains the strength of the bounce we’re seeing today.” Many analysts think a key motivation behind China’s rate cut has been the recent sharp fall in the value of the Japanese yen, which is likely to have an impact on China’s exports.

Meanwhile, the ECB’s Mario Draghi said that if current efforts do not achieve the desired effect, the bank could “broaden even more the channels through which we intervene.” For many in the markets, that was a clear hint that the bank could soon starting buying government bonds. 

In the Asian markets the Nikkei is closed for a local holiday while the Korean exchange added 0.6 per cent, but Sydney added 1% per cent. The Hang Sang ended a losing streak to rise 0.19 per cent and Shanghai jumped 2.0 per cent.