- The Dow Jones marked out familiar territory near 44,500.
- Equity traders were pushed into a cautious stance after a policy pivot from China.
- Investors will get a breather from high impact data until midweek CPI inflation figures.
The Dow Jones Industrial Average (DJIA) churned near 44,600 as equities kick off the new trading week on a quiet note. Markets bucked early Monday after China announced its first official monetary policy shift in 13 years. However, risk appetite was hobbled by geopolitical risks from the Middle East and South Korea.
Political turbulence dampened investor mood during Monday’s overnight session. Chinese political leaders signaled a looser monetary policy strategy next year, clearing the way for the Chinese government to pursue further stimulus policies directly. Stocks exposed to Chinese markets rallied for a strong start to the week. Not all is rosy on the China front, however: Chinese authorities have declared an antitrust investigation into Nvidia (NVDA) over supposed violations of obscure anti-monopoly laws. The move is perceived as a retaliation against US sanctions meant to cripple China’s access to advanced chip technology.
South Korea’s latest political turmoil is evolving into complete gridlock after South Korean President Yoon Suk Yeol’s failed coup via martial law was soundly rejected by the South Korean Parliament. Despite getting soundly rejected by political leaders within South Korea, lawmakers were unable to reach consensus on what to do in response, with an initial impeachment vote failing to reach the required threshold. Members of the South Korean opposition party are immediately calling for another impeachment vote.
Middle East tensions continue to run on the high side following the overthrow of Bashar al-Assad’s Syrian government. The freshly deposed dictator has reportedly fled to Moscow following the overthrow of a decades-long regime. Further destabilization in the Middle East has bolstered Crude Oil prices but kept overall investor sentiment within the region at bay.
Investors will be looking ahead to a fresh print of US Consumer Price Index (CPI) inflation slated for Wednesday, with a thin docket on the offering for the early week. US CPI inflation is expected to tick up again on an annualized basis in November. Median market forecasts expect Wednesday’s US CPI inflation to rise to 2.7% YoY compared to October’s 2.6%.
Dow Jones news
The Dow Jones equity board is on-balance on Monday with listed equities split roughly down the middle between gainers and losers. Boeing (BA) rose 4.5% to test $161 per share after announcing further layoffs in Washington, keeping in-line with the company’s plans to axe 10% of its global workforce in a bid to prove to investors they’re willing to do whatever it takes to achieve profitability and cut costs, even if it means crippling their ability to meet customer orders in the future.
Dow Jones price forecast
The Dow Jones’ post-Trump election rally is once again running aground of tepid investor sentiment, and the major equity index is poised for further downside after bulls ran out of gas near the 45,000 major price handle. Despite congestion hobbling topside momentum, price action has yet to commit to a move south.
The 50-day Exponential Moving Average (EMA) is rising through 43,400, providing a convenient floor for bidders to return to the fold if downside momentum wins the tug of war. The Dow Jones is up 18% YTD, but poised for a retracement after climbing 7.6% in November alone.
Dow Jones daily chart
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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