In what could be the continuation of a familiar cycle, the US and European markets ignored the Shanghai Composite’s plunge, and a sharp rise in the coronavirus death toll, to rebound on Monday.
The fact the People’s Bank of China pumped a not-insignificant chunk of change into the financial system, alongside evidence the ‘national team’ of state-backed investors has been buying stocks, appeared to reassure Western investors.
Though the DAX and CAC only rose 0.4% and 0.7% respectively, the gains were larger in the US and UK.
The FTSE’s 1.2% surge was largely rooted in the pound’s renewed Brexit migraine. Sterling fell 1.4% against the dollar and 1% against the euro as Boris Johnson and Michel Barnier laid out their conflicting positions on the future of the UK-EU trade relationship ahead of the start of talks in March. The PM doesn’t want to have to stick to EU rules and regulations; the bloc’s chief negotiator claims Johnson has already agreed to do exactly that.
The Dow Jones took back 350 points thanks to a mixture of a notably better than expected ISM manufacturing PMI, and a 4.3% increase from Nike (NYSE:NKE) following positive recommendations from UBS and JPMorgan (NYSE:JPM).
The US index may get further help from Alphabet (NASDAQ:GOOGL) after it posts its Q4 results. Analysts are expecting the Google-parent to post earnings of $12.57 per share, with a 19% jump in Q4 revenue to $46.9 billion.
An additional quirk this Monday is the Iowa caucus. It arguably marks the real start of the 2020 presidential election, and while it may not yet ripple out to the markets, investors would be wise to keep an eye on what’s going on with the Democrats.
Bernie Sanders has been gathering steam and is likely to win this early skirmish. More importantly for investors, perhaps, at current polling, Sanders would beat Trump in an election at 49% to 45%. Actually all 4 of the Democratic frontrunners are polling higher than Trump, with Biden holding the biggest lead of 5 percentage points.
As for a market-reaction, a win for the left of left-wing Bernie could make itself felt – just look at how the pound reacted in those rare moments when Jeremy Corbyn ever started to rise in the polls. It might take more than an initial caucus victory, however, to draw investors’ eyes away from the coronavirus.
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