LCG Research: Stocks Rebound with Chinese Stimulus Hopes

 

Asian markets followed Wall Street higher overnight as trade war fears eased. Markets across Asia rebounded from 3 ½ month lows on a softening of stance from Trump and amid growing expectations of further stimulus from the Chinese government. Despite the advance, volumes have remained light suggesting that the bounce lacks conviction, which is hardly surprising given that Trump is preparing to slap tariffs on a further $300 billion of Chinese imports. A move that will not only hit the Chinese economy hard but also the US economy.

Still, sentiment has picked up after a tough week as President Trump laid off the threats and appears to be in search of compromise. His comments that talks with China have not collapsed have been taken onboard by traders and helped stocks on Wall Street bounce overnight. Riskier assets were in favour once again, whilst flows into safe havens stalled. Gold gave up gains over night, now some $10 dollars lower than its $1304 peak overnight. The safe haven yen was also lower versus the dollar, as the USD/JPY picked up from 109.02 lows from Monday to trade at 109.60.

Weaker Chinese data feeds stimulus optimism

Data out of China did little to stem concerns over the health of the Chinese economy, however, hopes of further stimulus prevented stocks from falling. Industrial production growth slowed in April from a 4 ½ year high the previous month, whilst the increase in retail sales of 7.2% also missed forecasts of 8.6%. These figures show that the Chinese economy is losing steam. Given the spotlight on the health of the Chinese economy amid recent US trade tariff hikes, these figures could have been received very differently. The Shanghai Composite closed 1% higher on the assumption that Beijing will continue supporting the weakening economy.

Oil dips on unexpected US stockpile surge

Oil tended lower in early trade on Wednesday, as API data showed an unexpected jump in US stockpiles. Data showed that US inventories increased by 8.6 million barrels in the week to May 10 to 477.8 million. This was significantly higher than the 800,000 decrease that analyses had pencilled in. The inventory data has overshadowed news of rising tensions in the Middle East after 2 oil pumping stations were attacked in Saudi Arabia and 2 oil tankers sabotaged earlier in the week. Supply factors continue to dominate with any demand concerns from escalating US – China trade tensions taking a back seat. After reaching $63 earlier in the week, crude had slipped through $61.50 early Wednesday.


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Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.