By Joyce Yu
Philadelphia, PA–Led by better-than-expected corporate earnings and positive news out of Beijing, global equity markets marched higher Wednesday with the Dow breaching the 23,000 milestone.
IBM saw its biggest stock jump in eight years this morning following an after-the-bell earnings beat on Tuesday. The stock was up 9 percent to $159, the largest jump since January 2009. Despite declining revenue for 22 straight quarters, IBM saw its earnings higher than expected.
Over in Asia, Chinese President Xi Jinping declared that China had “entered a new era” in his opening address at the country’s landmark Communist Party Congress. Investors are looking for any guidance on the shape of expected further reforms to China’s economy, according to the Financial Times.
Allan von Mehren, Danske Bank’s China economist, said the speech had “little impact on markets” due to its lack of “big surprises or any specific policies laid out”. He further shared with the Financial Times that “markets are increasingly pricing a further push for reforms next year as Xi Jinping will likely have more focus on the economy, after five years where a lot of focus has been on ‘cleaning up’ the party and strengthening his power base.”
Earlier this year, China’s bank regulator called for domestic lenders to check the “systemic risk” presented by “some large enterprises” that have been acquiring companies overseas.
“President Xi Jinping has been clear he wants to push through supply-side reform, remove excess capacity and clear up the financial system,” the Financial Times quoted Eric Moffett, portfolio manager of the T Rowe Price’s Asian opportunities equity fund.
With all Wall Street indexes extending their gains to new heights, US Treasury Secretary Mr Steven Mnuchin said in a Politico podcast that there was “no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done”. But he also warned that American equities will reverse a “significant amount” of their recent gains if Congress does not enact reforms.
Looking ahead, investors will pay much of their attention to central banks’ next move to tighten monetary policies.
“We need much more clarity on monetary policy: we have the ECB coming up next and we have some issues with the Fed. That’s where the market focus is going to be,” Peter Rosenstreich, Head of Market Strategy at Swissquote Bank in Geneva told the Reuters.
There have been reports that US president Trumped interviewed former Fed governor Kevin Warsh and Stanford economist John Taylor, both considered hawkish, for potential candidates to success Yellen as the next Fed Chair. The market has since expected faster pace of rate hikes by the Fed.
Rosenstreich said, on the other hand, that appetite for risky assets remained intact as the solid growth outlook and low inflation combined in reinforcing expectations that the pace of central bank normalization will be gradual.
“People still see this as a low rate environment and risk appetite continues to drive the market pricing,” he said.
