4:18pm: China's central bank cut rates, but US stocks were unbothered
The Dow closed Monday up 152 points, 0.5%, at 33,913, the Nasdaq Composite added 81 points, 0.6%, to 13,128 and the S&P 500 improved 17 points, 0.4%, to 4,297.
The benchmarks opened in the narrative but turned things around by midday. If the positive sentiment holds all week, the S&P 500 is on pace for its fifth winning week in a row.
The rally came even as traders reacted to a decision from China's central bank to cut interest rates, according to media reports, prompting concern about the company's economic recovery. Part of the reason that didn't send US indices into the red is because markets may already have negative news priced in, said Triust Co-Chief Investment Officer Keith Lerner.
“I think what this market is doing a really good job at is making a lot of people feel very uncomfortable,” Lerner said, as reported by CNBC. “The way the market’s trading, it’s already been braced for bad news, so once it gets it, it doesn’t hurt the market because it’s already prepared for it.”
12.05pm: US stocks push into green
The major US indices were in green territory midday, as traders bet on the hope that weaker commodity prices would push the indices higher.
At midday, the Dow Jones Industrial Average was up 0.3% to 33,864, the S&P 500 was up by 0.2% at 4,288, and the Nasdaq Composite was up by 0.4% at 13,097.
Chris Beauchamp, chief market analyst at online trading platform IG, said some profit taking in indices off the back of Friday’s bounce left the overall bullish short-term view in place earlier this morning.
“Stocks on both sides of the Atlantic have drifted down at the start of the week, trimming some of their gains from the sharp move up on Friday. China’s poor data overnight caused a flutter of worry to echo around global bourses, but the People’s Bank of China rate cut has helped to steady things in the short-term. So far, this movement doesn’t look like it is about to turn into anything more severe, and the very absence of major news this week will likely prove more of a help than a hindrance to further gains,” Beauchamp said.
He also noted that a large part of the bounce since the low in July has been expectations that inflation readings will moderate thanks to a drop in oil prices and that of other commodities.
“Today’s fresh drops, caused in no small part by the China data, will help those arguing that last week’s US CPI was not a one-off. Oil’s fall owes more to hopes of a deal with Iran, but regardless of cause, weaker commodity prices should help indices push higher, even with oil’s fall hitting energy names,” Beauchamp said.
At midday, the major movers included DNA sequencer Illumina, up by 9.9% in a reversal of Friday’s 8.5% drop upon news that exchange rates and lockdowns in China affected its second quarter results. Walt Disney was also up by 2.8%.
On the downside, Halliburton was off 3.5%, Seagen shed 2.2% and Chevron was down 1.9%.
11.50am: Proactive North America headlines:
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First Mining Gold provides update regarding its offer to acquire all of the issued and outstanding common shares of Beattie Gold
Alkaline Fuel Cell Power sees increase in total assets; reiterates focus on strength and diversification for rest of 2022
9.35am: Stocks fall on weak economic data
US stocks opened lower on Monday after softer economic data from China and a negative New York Empire State Manufacturing Index reading saw growth concerns return to quash investor confidence.
Just after the open, the Dow Jones Industrial Average had shed 141 points at 33,620 points, the S&P 500 had slipped 17 points at 4,264 points, and the Nasdaq Composite was down 4 points at 13,043 points.
City Index and FOREX.com market analyst Fawad Razaqzada said, while China’s slowing economy was a major concern, the just-released poor Empire Manufacturing Index print of -31.1 compared to +5.1 expected was a reminder that it was not just China struggling for growth.
“There’s not an awful lot to look forward to in terms of US data except the NAHB Housing Market Index and Tic Long-Term Purchases,” he said. “So, keep a close eye on commodity prices to gauge the appetite for risk.”
6.30am: Slight hiccup
US stocks were seen starting the week on a sour note, giving up some of their recent gains, after softer economic data from China renewed concerns that global economic activity may be waning.
Stocks enjoyed a good showing last week after a drop in the headline US inflation rate stoked expectations that rate-setters in the world’s biggest economy will likely scale back on future interest rate hikes.
Futures for the Dow Jones Industrial Average were trading 0.5% lower pre-market on Monday, while those for the broader S&P 500 index were also down 0.5%, and contracts for the tech-laden Nasdaq-100 lost 0.6%.
“European and US futures are trading lower as traders are picking up the momentum from Asia, where trading has seen soft, said Naeem Aslam, chief market analyst at avatrade.com.
The falls came even as China’s central bank delivered a surprise interest rate reduction.
“The bank has taken this action to revive and stimulate growth as the country’s housing sector has seen a serious downtrend, and other COVID-related lockdowns aren’t helping,” Aslam added.
A run of soft economic data from China, the world’s second-biggest economy, added to the caution.
“We are not seeing much risk-on rally today because the Chinese retail sales data failed to impress investors and traders as the data came well below the market expectations and printed the reading of 2.7%. against the forecast of 6.3%. The industrial production number, year-on-year, also fell short of expectations, with the reading of 3.8% against the reading of 4.5%,” said Aslam.
The broad-based deterioration in economic data spooked investors already worried about the likelihood of a recession in many parts of the world.
Looking ahead, US retail sales data due out on Wednesday will be closely watched for signs of any waning in consumer spending.
“Traders expect to show a further slowdown than the expectation; the forecast is for 0.2%, while the previous reading was 1.0%,” said Aslam. “And finally, and more important, is the FOMC Meeting Minutes, which will gather a lot of attention among traders and investors who will like to know what the Fed thinks about their monetary policy reading after an encouraging reading from the inflation and labor market."
The Fed minutes are also due on Wednesday.
Contact the author at jon.hopkins@proactiveinvestors.com