Wall Street erases losses, Chinese stocks supported by central bank

Summary:

• US indices managed to trim their losses at the end of Tuesday’s session

• Chinese stocks are on the rise again on hopes of further stimulus from the central bank

• WTI oil prices approach their pivotal support following an unexpected build in inventories

Recent days have brought fairly hectic days when it comes to the performance of Chinese indices. After a two-day rally taking place on Friday and Monday investors took money out of the market causing a sell-off yesterday. However, stimulatory policy is back again today and for this reason we are experiencing another green session in Asia. The Shanghai Composite is rising 1.4% while the Hang Seng (CHNComp on xStation5) is pushing 0.75% higher as of 6:12 am BST. What was the prime reason behind these rises? According to Bloomberg the country’s central bank plans to give as much as 10 billion CNY ($1.4 billion) to China Bond Insurance in order to provide credit support for debt sales by private enterprises. By increasing lending in the economy the monetary authorities want to stimulate the faltering stock market which seems to be on the brink of the bear market.

Fiscal and monetary policy measures undertaken so far to stimulate the China’s economy and thereby the stock market alike. Source: Bloomberg

Beyond the comments from the People’s Bank of China we were already offered some remarks from the China’s Natural Resource Defence Council (NRDC). It said that it will increase support to stabilize jobs in te regions the most affected by the US - China trade dispute. Taking into account the array of measured implemented thus far one may arrive at a conclusion that China’s economic growth could be even revised upwardly. Nonetheless one cannot forget that the global economy is slowly entering a phase of slower growth hence support measures in China could only alleviate this slowdown in the upcoming quarters. Notice that the stocks market remains remarkably weak despite these measures, and assuming that all of them have been already priced in, it could constitute a threat to China’s stock market valuation. Summing up the thread related to the global stock market it needs to note that US indices made an amazing U-turn on Tuesday being able to erase most of the losses. As a result, the declines turned out to be quite moderate with the SP500 (US500) dropping 0.55%, the NASDAQ (US100) sliding 0.4% and the Dow Jones (US30) moving down 0.5%. Over Asian trading hours the US 10Y yield was trading in a range of 2 basis points suggesting that a flight to haven remained limited.

A technical point of view implies that this week is going to by really crucial for the US500. The price is already trading close to its 50-week moving average, the line which provided bulls with support in the past. For technicians breaking of this level could be a clear signal to end the bull market and that is why this is so important line to watch. Source: xStation5

Oil prices are trading slightly higher this morning with both grades gaining a few tenths of a percent. Prices were decimated on Tuesday falling as much as 5% on the back of Saudi Arabia comments that it will keep markets supplied despite the upcoming US sanctions on Iran. The OPEC’s leader added that it will step up output to “meet any demand that materializes to ensure customers are satisfied”. Oil prices got an additional blow from the weekly API release as it showed that US oil inventories grew 9.9 million barrels compared to a 3.5 million expected rise. Gasoline stocks fell 2.8 million barrels while distillate went down 2.4 million barrels. As a result, WTI prices moved down substantially yesterday touching the long-term trend line depicted in the chart below. If the bull market is to be retained, a corrective pullback needs to occur. Under such circumstances a move toward $70.5 per barrel looks reasonable. Crude prices might be again more volatile this afternoon when the DoE releases its weekly estimates.

WTI prices plummeted on Tuesday to their key support line. If the bull market is to continue, this level cannot be broken at a daily interval. Source: xStation5

In the other news:

• President Donald Trump accused Fed’s Chair Powell of endangering the US economy by rising interest rates saying “every time we do something great, he raises the interest rates”

• Italy’s Conte says “there is no plan B regarding the budget” adding that he is keeping a close eye on the 10Y yield spread between Italian and German bonds

• Japan’s manufacturing PMI rose in October to 53.1 from 52.5, climbing the highest since April

• Australian CBA manufacturing PMI for October grew to 54.3 from 54