The People’s Bank of China Lowering the Seven-Day Reverse Repurchase

January 08, 2020

The HCM BuyLine® is positive and any pullback at this point should be seen as an opportunity to add to your positions. The conflict in Iran will cause uncertainty for a period of time, but we don’t see it derailing the bull market.

The People’s Bank of China said last Monday it was lowering the seven-day reverse repurchase rate to 2.50% from 2.55%, the first cut in more than four years. The importance of the move is that it suggests more easing is to come. Investors are also expecting the signing of the Phase One of the U.S. China trade deal Jan. 15, which should also help boost sentiment. Still, much of the gains were lost as stocks slid back on Friday after the Middle East news, and on the release of some weak economic data that had nothing to do with geopolitics. The U.S. manufacturing sector contracted for the fifth consecutive month in December, thanks mainly to trade tensions. The Institute for Supply Management said on Friday its manufacturing index fell to 47.2 in December from 48.1 in November. It is the lowest level since June of 2009. The market expected 49.0. 


Before we move fully into 2020, I want to point out that the fourth quarter of 2019 was truly remarkable, in that for most of the quarter it seemed as though the equity market did nothing but trade higher. Even on an intraday basis, if the market was open, it was likely higher than the prior day’s close. In late December, the S&P 500 was positive on an intraday basis over 65% of the time over the prior 50 trading days. That is a level that has only been surpassed a handful of other times going back to 1984, according to Bespoke. So, it wouldn’t surprise me if we get a little choppy action in the first quarter and the market digests these big gains of 2019. The technical work suggests that too. 


Trump has positive trade wins in the coming weeks with the announced signing of a Phase One deal with China on January 15, and the Senate Finance Committee is ready to approve USMCA and send it to the full Senate. McConnell, eager to demonstrate that Iran and impeachment are not paralyzing the Senate, will move ahead with USMCA this month.

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