Morning Minutes

Stocks Drop as China Cuts Interest Rates




Equity markets have entered the first of two holiday-shortened trading weeks in reverse gear. Overnight the Peoples Bank of China announced a small but significant 5 basis point cut to its benchmark rate to 3.80%. Investors who haven’t already checked out for the holidays appear to have taken that move as a sign of economic weakness or at least heightened concerns that the COVID Omicron wave could potentially have a negative impact on the global economy and business conditions in the near term.

Overnight, traders have been heading for the exits. The Nikkei plunged 2.1% while the Hang Seng dropped 1.9%. In Europe this morning, the Dax is down 1.7% and the FTSE is down 1.0%. In the US this morning, Dow futures are down 1.0%, adding to Friday’s Dow loss of 1.5%, while NASDAQ futures are down 1.3%.

In commodity action, WTI crude oil is getting slammed again, falling 4.3%, while gasoline is down 2.8% as investors fret over how much new travel restrictions and other lockdown measures could reduce the demand for fuel. Copper is down a more moderate 0.7%, but auto-sensitive platinum is down 2.0%. Equity market sectors sensitive to reduced travel such as airlines and cruise lines have been under pressure as well in pre-market action.

Capital leaving equity markets appears to be mainly moving into bonds. With bond prices on the rise, the US 10-year treasury note yield has dropped back under 1.40%. The US Dollar and Japanese Yen are up 0.3% and about 0.4% today against the Euro, Pound and Loonie. Cryptocurrencies are once again seeing capital flee as investors retrench with Bitcoin falling another 2.4% toward $45,000, but surprisingly, Gold has not benefitted from today’s conservative tone in the markets and has actually slipped back 0.4% and back under $1,800/oz.

Last week, we saw several morning rallies falter as bears moved in over the course of the day, a bearish sign. So far today, bargain hunters and Santa Claus appear to be off on vacation and it remains to be seen if bears will remain in charge or if the current tide of red in the markets can be slowed or reversed.  

The PBOC was the last major central bank decision of the year. It’s a light week for economic and corporate news ahead with the highlights being Canadian retail sales on Tuesday and US durable goods orders on Thursday. Friday US markets are close and Canada is only open for a half-day.

SIA Wealth Market Outlook Webinar Tuesday December 21st, 2:00 pm EDT

Please join us on Tuesday, December 21 @ 12pm MT / 2pm ET for our Market Outlook Webinar with Colin Cieszynski, Chief Market Strategist. We will be answering questions by advisors related to holiday seasonality, central banks, consumer confidence, cryptocurrencies and energy.

The link to register for the webinar:

After registering, you will receive a confirmation email containing information about joining the webinar.  A replay will be available and sent to all registrants after the webinar.

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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