What happened
Chinese stocks rallied today in the hope that the Chinese government will inject more stimulus into the economy. They also seem to be moving higher with the broader market, which seems to like new data from the recent U.S. jobs report.
Shares of the large Chinese tech conglomerate Alibaba Group (BABA 2.70%) traded roughly 2.5% higher as of 11:28 a.m. ET today. Meanwhile, shares of the e-commerce companies Baozun (BZUN 1.23%) and Dingdong (Cayman) Limited (DDL 4.78%) traded nearly 6% and 8% higher, respectively.
So what
All stocks seem to be responding positively today to the May jobs report, which was released this morning. The U.S. economy added 339,000 jobs this month, well above expectations, while the unemployment rate ticked up to 3.7%, once again above expectations.
Image source: Getty Images.
The jobs report is a bit perplexing as you wouldn't expect the economy to have such a strong month of hiring while unemployment moves higher, but certain parts of the labor market like leisure and hospitality remain hot, while others are slowing. Following the report, traders are betting the Federal Reserve will not raise interest rates at its June meeting and then is pricing in a 50% chance of a quarter-point hike at the Fed's meeting in July.
But there is still a lot of debate about the Fed's direction with rates. In a New York Times interview, MacroPolicy Perspectives Founder Julia Coronado called the big jump in hiring in May an "anomaly," adding, "Everything else speaks to a cooling in the labor market."
However, TD Securities strategist Gennadiy Goldberg said, "Given this upside surprise in payrolls, I still think the Fed has more room to tighten."
More specifically to Chinese stocks, "The market is now betting on policy easing," wrote Northeast Securities analyst Zhang Chen in a recent research note to clients, citing a potential policy shift at China's upcoming Politburo meeting in July.
After a difficult year for the Chinese economy in 2022, categorized by "zero-COVID" policies including widespread lockdowns to prevent the spread of the virus, the Chinese economy was expected to have a strong rebound this year. In the first quarter of the year, the economy grew at 4.5%.
But more recently, there have been concerns about whether or not the economy can sustain the momentum. Youth unemployment in the country is very high and this week new economic data showed that manufacturing activity slipped in May.
Now what
While certainly good in some regards, the jobs report today does not yet answer the question of whether the Fed is done raising rates. I still think a pause is likely in June and then more data will be needed to determine if the Fed can pause for good, which would help all tech stocks.
Stimulus would also certainly benefit these Chinese stocks but that's tough to bank on just yet. Of these three names, Alibaba is my favorite long-term pick, given its recent plan to split into six different units and explore initial public offerings for each one, which could allow a more favorable valuation. The company also rolled out its own version of ChatGPT technology yesterday, which could be a very promising business for the company.
