China’s Benchmark Rises On Optimism

The Shanghai Composite, China’s mainland benchmark, extended its winning streak begun last week as investors were fueled by good economic data indicating China’s economy could be stabilizing. The rest of the Asian markets saw trading capped by poor growth data out of Japan.

One of China’s key economic indicators was released, its money supply or M2. The ndex increased by 14.5 percent in July from last year. This is yet another positive sign indicating the world’s second largest economy is on the mend. Last week saw stronger than expected PMI and this boosted growth expectations for Q3.

However, GDP out of Japan came in at a tepid 2.6 percent. This was 1 percent lower than market expectations. However, the economy has grown now for three straight quarters and has added optimism that Abenomics is working.

STOCKS
The Shanghai Composite rose 1.3 percent to a new one month high at 2,079.23. The Nikkei, despite lower than expected GDP data, moved off its sx week low. The Japanese benchmark closed flat. The Australian S&P/ASX was up 0.6 percent and the Kospi closed flat at 1,885.

U.S. markets had a horrible week. The DJIA was down 1.5 percent for the week as it lost nearly 73 points to end at 15,425.51. At one point during the session, the index was off by 130 points. The S&P 500 lost 6 points to close at 1,691.42 and the NASDAQ fell 9 points to close at 3,660.11. It should be pointed out that the U.S. markets had their worst (weakest) volume for the week. It was the hardest for the S&P 500 which has not seen this kind of weak volume since August 2006.

The European benchmarks were all higher Friday on good data out of China.

CURRENCIES
We are seeing a divergent trend in the Forex world. The G-3 currencies are weaker and he Aussie and emerging market currencies are stronger.

The EUR/USD (1.3322) has fallen from a high at 1.3400. We see support at 1.3300 and then at 1.3250 which could hold. The GBP/USD (1.5492) has been seeing profit taking. It has fallen from last week’s high at 1.5573 and could now test support at 1.5400 and lower as long as it is below a key level at 1.5500. The USD/JPY (96.45) has found some measure of support at 96.00. While above 96.2500 we can test 97.00 with a break higher testing 96.4950. Please see the below USD/JPY chart.


The AUD/USD (0.9200) is witnessing short covering. It has moved higher as it has broken its downtrend from 1.0581, a high seen on April 11. We could test 0.9276 today.

COMMODITIES
The commodities world is doing well right now.

Copper (3.2985) has seen a stunning and surprising reversal of fortune. The commodity rose past 3.30 but has since fallen a bit on some profit taking. We need to watch copper, like we have been saying for two weeks now.

Brent WTI (108.20) recovered on Friday from its low of 106.00 seen last Thursday. W could see a test of 110.00 this week. Gold (1328.60) has also been surprisingly strong as it rose strongly past 1325.00. Near term resistance lies at 1349.50 with a break above that targeting a key level at 1400.00

TODAY’S OUTLOOK
Today is a quiet data day. We will see the treasury budget out of the U.S. later in the trading day.
However, we should see how the poor data from the U.S. Economy effects Europe at the open. June Wholesale inventories lost 0.2 percent in June. Expectations were for a 0.4 percent gain. Inventories lost 0.5 percent the month before.