Swissquote Bank: When do you start to worry about Chinese stimulus?

25 januari 2024

Chinese stimulus – if successful – should boost global inflation and interfere with central banks’ plans to loosen policies.

‘The stock rally continued on both sides of the Atlantic on Wednesday, the technology and chip stocks remained in the driver seat. Sentiment in Europe was bolstered by an almost 9% rally in ASML on news that their orders more than tripled last quarter. Now, there is a catch,’ Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, says today. ‘A third of the $10 billion dollar worth of orders came from China as Chinese companies rushed to buy these machines by the end of last year before the US and Dutch chip ban came into effect. But even if the Chinese demand will fade away, ASML says that it expects its sales to remain steady thanks to AI demand.’

‘As such, the ASML news also boosted the stock prices of our favourite AI plays. Nvidia hit another record yesterday, TSM extended gains, Microsoft was worth $3 trillion for some time. The S&P500 and Nasdaq 100 hit a fresh record, and Netflix – which has nothing to do with AI, but which was just cheering its 13-mio new subscribers for the latest quarter – jumped 10%. 

In summary, all goes well for those who are in the technology boat sailing north. For the rest, skepticism best describes how they feel about an unsustainable rise in valuations.'

Tesla misses, Intel next

‘Tesla missed estimates in its latest quarterly earnings report and warned that its EV sales growth will be ‘notably lower’ and that the numbers will suffer until the company comes up with a cheaper model. The series of price cuts weren’t enough to bolster demand in a way to keep the company smiling and profits rising – sufficiently. As such, Tesla refused to offer a specific growth target and its share price took a 6% hit in the afterhours trading. Intel is due to report its earnings today.’

Connecting the dots

‘The Chinese are serious about bolstering their economy and they look like they are getting to a place where they are ready to do whatever it takes to reverse the slowing trend. In addition to a series of market stimulus news, the People’ Bank of China announced yesterday that it will cut the reserve ratio for the banks by 50bp from February to release more liquidity to bolster stock valuations The latter will free up to an additional trillion yuan, which equals $139 billion US dollars.

Will it help? Well, we will see. The good news is, if it doesn’t, the Chinese will continue until it does. The CSI 300 finally sees some positive reaction, stocks in Hong Kong are up 10% since Monday, American crude is drilling above the $75pb per barrel and copper futures – which are a gauge of global growth – also seem gently convinced that the Chinese will put all their weight – all they need to – to make things better. 

But note that China’s supportive policies may not echo well across the developed markets’ central banks, because the Chinese stimulus – if successful – should boost global inflation and interfere with DM central banks’ plans to loosen policies.’