- October 22, 2018
- Posted by: Trading
- Category: Market Overview
- China indices, global stocks, US futures rally, after Chinese officials vow to boost China’s economy
- Italian bonds and stocks rebound after Moody’s spares the country from ‘junk’ status downgrade
- Oil eyes $70 on looming Iran sanctions
European shares as well as futures on the , and took their cue from the biggest Chinese equity rally in two and a half years this morning, after both the Chinese government and central bank sources signaled further stimulus for the country’s economy, which has shown signs of strain from the ongoing trade war with the US.
The opened 0.1 percent higher and extended gains to 0.4 percent, though trimming an initial jump of 0.7 percent. Technically, the price extended Friday’s rebound from the bottom of a bearish, rising flag, on top of a downtrend line since late August 2017, which may prove to be the neckline of a massive top since May 2017.
Shanghai Composite Daily Chart
China’s leaped over 4 percent, its biggest gain since March 2016. This follows the Asian benchmark halving its value in the seven months leading to February, when it bottomed. Today’s rally builds on Friday’s rebound, for a total 7 percent comeback. The mainland market’s extraordinary optimism followed bullish rhetoric from President Xi Jinping, who vowed “unwavering” support for the country’s private sector through further tax cuts and deductions.
The also closed 4.89 percent higher, or +7.9 percent since Friday. Technically, however, the advance is considered nothing more than a correction within a downtrend, as it approaches the top of a descending channel and the 50 DMA. This clashes with overly upbeat headlines that suggest the Chinese market’s 31 percent year-to-date plunge could finally be over.
The fundamental outlook is also less positive, as there are no signs of easing tensions between the world’s two largest economies. White House economic adviser Larry Kudlow blamed China for doing “nothing” to de-escalate the trade dispute ahead of a meeting between President Donald Trump and President Xi Jinping at the G20 in Buenos Aires on November 29.
Global Financial Affairs
During Friday’s US session, most stocks slipped after disappointing , the lowest since 2015, wiped out an earlier, earnings-driven rally. (NASDAQ:) was investors’ favorite, jumping 9.42 percent after the online payments company raised its outlook on higher-than-expected earnings and revenue. On the other side of the spectrum, eBay (NASDAQ:) tumbled 8.87 percent to a near two-year low, after being hit by an analyst downgrade.
SPX Daily Chart
The , and posted the same technical picture: the price ended right on top of a convergence of technical supports between the 200 DMA, the rising trend line since the February 2016 bottom and the bottom of a rising flag, bearish with a downside breakout. These sorts of confluences tend to attract traders who follow the trend’s path, increasing the pressure toward its focal point. The breaking point typically causes an explosive move, as all the pressure is forced in one direction, triggering stop-losses on one side and short squeezes on the other.
Russell 2000 Daily Chart
The , conversely, had already fallen below its confluence of the 200 DMA and long-term uptrend line since February 2016. Should the small cap benchmark slip below 1,530, it would complete a trend reversal. This is noteworthy, as overall market tops are generally preceded by a selloff of small caps. However, large cap stocks are not yet in a downtrend and this may just be the time for responsible (with strict equity management discipline) risk takers to pick up stocks on the cheap.
This morning the strengthened, after Italian bonds and rallied after Moody’s Investors Service downgraded the country’s sovereign debt by one notch, leaving them still one level above junk status, and kept its outlook stable.
Italy 10-Y Bond 60-Minute Chart
However, the single currency later started to edge lower. The yield on Italy’s notes rebounded for the second hour after falling almost 4.4 basis points in the seven hours till 2:00 EDT.
DXY Daily Chart
The dollar weakened as investors rotated out of safe haven currencies and into risk assets, as well as into the euro. Technically, the completed a bearish pennant, which also forms the right shoulder of a H&S top, on the hourly chart. However, the greenback was seen gaining some ground later in the European morning session.
WTI Daily Chart
is eyeing the $70 threshold ahead of the official start date of US sanctions against Iran, on November 4. A Reuters report suggested that OPEC producers would be unable to step up total output, as higher Saudi supply was offset by lower production in other member states.
Iraq overtook Canada as the world’s fourth-largest oil producer this year, increasing shipments to Asia, Europe and the Mediterranean region, in an attempt to fill Iran’s vacuum. However, the war-stricken country is unable to provide basic services like clean water and power to its citizens in the areas where most of its oil is extracted. Technically, black gold is gaining for a second day after nearing the bottom of a rising channel since February, “guarded” by the 200 DMA. An RSI breakout would confirm that momentum is set to go higher.
- West Texas Intermediate crude gained 0.7 percent to $69.60 a barrel, the largest rise in almost two weeks.
- gained less than 0.05 percent to $1,227.05 an ounce, the highest level in a week.