After two downbeat sessions, investors are once again in a buying mood showing immunity to a whole host of reasons to remain bearish (not least to mention 3 million more Americans filing for jobless claims).
Following a higher close on Wall Street, investors seem to be brushing off rising US – Sino geopolitical tensions as they focus on the bright spots in mixed Chinese data which provided further insight into post-lockdown economic recovery.
Data from China was a mixed bag. A better than forecast industrial production reading showed that heavy industry was rebounding in the world’s second-largest economy. However, the same cannot be said for retail sales, which declined a worse than forecast -7.5% in April. Although, this as a significant improvement from last month’s -15.8% decline. The improvement in industrial production indicates that stimulus measures are working. However, this will take longer to trickle down to improving consumer confidence and lifting sales.
What we can take away from the Chinese data and apply to other economies is that improvements in economic activity will be gradual.
Concerns over a second wave of infections that have weighed on sentiment over much of the week, continued to play out in China and South Korea where clusters of outbreaks are causing problems. Fears of infections rising in Germany have also weighed on risk appetite as the economy gradually reopens.
Trump threatens to cut ties with China
The markets have largely brushed off Trump threatening to cut off relations with China. The flare-up in US – Sino tensions comes amid Trump’s efforts to pin the blame of the coronavirus outbreak on China. Whilst traders are sweeping these comments under the rug today, it is highly unlikely that we have heard the end of this. The US – Sino relations theme could well hamper market sentiment across Q2.
DAX levels to watch:
After two days of losses, the DAX is trading below its 20 & 50 sma on THE 4-hour chart. Immediate support can be seen at 10372 (overnight low) prior to 10141 (yesterday’s low).
Resistance can be seen at 10560 (20 sma) prior to 10685/10700 (50 sma & high 13th May) and 11030 (high 11th May).
