Authorities in China have indicated local pension funds will start investing 2trn yuan ($313bn) into the stock market as soon as possible, helping Chinese equities to another good day of gains on Friday. A lacklustre start in Europe could mean developed markets are shifting back to their traditionally lower correlation with those in China. More likely though, investors don’t have the stomach to hold onto gains heading into the weekend so the rally is running out of steam.
The UK’s FTSE 100 outperformed thanks to its strong contingent of energy names that were boosted by yesterday’s 10% jump in the price of crude oil.
US stocks are expected to take a breather after huge gains in the past two days with a lower open on Friday ahead of a number of important economic reports.
Gains in US stocks were led by the energy sector after the massive 10% jump in crude oil prices but the recently battered technology sector also posted a strong return. The last hour of US trading showed volatility is still very much present. Having been over 300 points higher, the Dow dived to be up less than 100 points with half an hour to go before surging again to close near highs of the day.
The Dow Jones has recovered around 60% of its losses since China first devalued its currency and is now less than 10% from its all-time highs. The recovery off the lows, particularly if this week finishes higher increases the chance that a short term base has been in put in. Even if this week saw the bottom of the correction, there’s a good chance we’ve seen the highs for this year.
It seems like the market has zeroed in on weak economic conditions in China and the US and is putting pressure on the respective central banks to do more. For now it’s worked, the PBOC have eased policy and the case for a September rate hike is now “less compelling.”
The surprisingly strong US GDP report has so far been taken well by stock markets as a sign of strength in the economy following fears over a slowdown in global growth. However, taken with any rise in today’s core PCE inflation data could be interpreted as justification for hiking interest rates sooner.
Also, University of Michigan consumer confidence is expected to slightly pickup to 93.1 in August from 92.9 in July.
Futures suggest the:
S&P 500 will open 13 points lower at 1,974 with the
Dow Jones expected to open 121 points lower at 16,523 and the
Nasdaq 100 31 points lower at 4,293.
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