CNBC Daily Open: Markets’ upbeat sentiment

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Traders work on the floor of the New York Stock Exchange (NYSE) on October 30, 2023 in New York City. 

Spencer Platt | Getty Images

What you need to know today

Hong Kong outperforms Asia
In Asia, Hong Kong’s Hang Seng index rose as much as 3% after Bloomberg reported that China is considering a rescue package backed by offshore money to stabilize its struggling stock market. Wall Street continued to extend gains on Monday. The Dow Jones Industrial Average spiked to hit a new record and closed above 38,000 for the first time. The S&P 500 rose 0.22%, also hitting a new all-time high. The Nasdaq Composite also extended gains.

BOJ maintains its negative rates
The Bank of Japan maintained its ultra-low interest rates in its first monetary policy meeting of the year. The move didn’t surprise markets as it was widely expected. The BOJ also cut its core inflation forecast to 2.4% for fiscal the fiscal year starting in April, from 2.8% estimated in October.

Bitcoin dips
Bitcoin extended its losses Monday, falling below $40,000 for the first time  this year. The price of bitcoin was last lower by 4.5% at $39,777.99, according to Coin Metrics. It earlier dipped to $39,414.80, its lowest level since Dec. 3.

China’s deflation problem
China’s economy is facing a serious deflation problem and that could hurt economic growth, according to one China strategist. He expects China to experience “another 3-6 months minimum of a very painful economy.” The world’s second-largest economy has faced a sluggish recovery in 2023 after exiting Covid-19 restrictions.

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[PRO] Wall Street’s China picks
Wall Street banks Morgan Stanley and JPMorgan have highlighted key China internet picks for this year. Both firms think an alpha-driven investment strategy will provide good risk-reward for the sector and picked some themes to watch. Alpha-driven returns show how well a stock has performed compared with its benchmark index.

The bottom line

Wall Street really seems to be in an upbeat mood as Monday’s trading session broke new ground.

Investors saw a bumper day as the Dow hit a new record and surpassed the 38,000 level for the first time. The S&P 500 also notched a second straight day of fresh highs, closing at about 4,850. That comes after the benchmark ended Friday at its first record high in two years. The tech-heavy Nasdaq also extended gains.

The market rally could be driven in part by rising investor optimism that the U.S. economy could manage a soft landing, in which inflation comes down to normal levels while the economy avoids a recession.

Some investors also expect the Federal Reserve’s interest rate cuts to come as soon as March. But that remains to be seen. Traders are pricing in a roughly 40% chance of a Fed rate cut in March, according to CME Group’s FedWatch Tool. This is a sharp fall from almost 81% a week earlier.

There are concerns inflation risks could rebound if the Fed cuts interest rates by too much, too quickly as continued economic strength and robust consumer demand could lead to an uptick in price pressures.

For now it’s unclear whether this rally will persist or fizzle out soon. New data out later this week, especially the first reading of fourth-quarter GDP should provide some clues.

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