A combination of central bank accommodation and data that directly contradicts the “weakening US economy” narrative saw risk buying accelerate in Friday night trading. European and US shares jumped, and industrial commodities followed, as investors shunned safety and slammed gold, bonds and the Japanese Yen. Asia Pacific markets are looking to a positive start, but the commencement of China/US trade talks today will likely be a key short term driver of markets.
The return of optimism started with the Peoples Bank of China easing reserve requirements for banks on Friday. The sentiment change was illustrated by later market reactions to comments from Fed chair Powell, with commentators seizing on the Fed’s “data dependence”, despite the fact that this has been a staple of Fed messaging for at least two years.
However it was the numbers that counted. US jobs data showed 300,000 new jobs in December and wages growth accelerating to 3.2%. The stronger employment numbers dropped alongside a surprise lift in services activity, providing hard evidence that the US economy is not as weak as many investors feared.
Against this improving market backdrop a US delegation arrives in Beijing today for two days of trade talks. Global growth remains a major concern for investors. Expectations are low, but any signs of an easing of the current logjam will likely add to the short term reversal of negative sentiment.