US Stock Market Overview – Stocks Rally on PBOC Rate Announcement

US stocks surged on Thursday the first trading day of the new year as the People’s Bank of China announced that the central bank would further loosen monetary policy by reducing the amount of reserves banks needs to keep on hold at the central bank. The stimulus would help commercial banks ease lending requirements on corporations, which would help buoy Chinese equities. Investors were also upbeat that the US and Chinese would sign a trade deal on January 15, according to US authorities, but CNBC reported that Chinese officials have yet to announce they would sign a deal on January   15, and are still in the process of translating their version of the deal into English. This has helped buoy gold prices.

The VIX volatility index tumbled as stocks surged, falling by more than 8% below 13. US jobless claims declined by 2,000 on Thursday ahead of the government’s report on nonfarm payrolls. Sectors in the S&P 500 index were mixed, driven higher by Technology shares. Real estate and utilities bucked the trend declining as yields dipped.

Jobless Claims Declined

The labor department reported that Initial claims decreased 2,000 to 222,000 for the week ended December 28. Expectations were for jobless claims to rise by 1,000 to 225,000. The four-week moving average of initial claims rose by 4,750 to 233,250, the highest level since January 2018.

The PBOC Reduces Reserve Rate Requirements

The People’s Bank of China announced a 50 basis point cut in the required reserve ratio for bank effective Monday, January 6.  The change in reserve requirement will release an estimated 800 in Chinese yuan and reduce banks’ funding costs, which in turn is expected to be passed on to corporate borrowers.  This suggests the benchmark one-year Loan Prime Rate will likely fall.  The required reserves ratios are set currently at 13% for large banks and 11% for smaller banks.