Review of August 10-14: China made markets jittery. Forecast for the week August 17 – August 21

By | August 15, 2015

Last week, the financial markets storm in connection with the decision of the Bank of China devalued the yuan. Such measures are taken in control for three consecutive days. Equity markets such measures accepted without much enthusiasm, showing a fairly strong decline. However, by the end of the week benchmarks could regain lost ground. US NASDAQ and Dow Jones closed with a result of + 0.36% and + 0.73% respectively. Hong Kong HSI dropped 1.6%. The German DAX 30 (FDAX) plummeted 4.13%, noting at least at the level of 10892.5 and even under the influence of good news about the decision of the Greek problems, was unable to win back losses.

The EUR / USD rose by 1.33% due to positive news on the Greekissue, and on expectations of a rate hike later the US Federal Reserve. Precious metals finished the week growth, as the actions of the Chineseregulator boosted demand for safer assets. Gold has risen in price by 1.89%, 2.91% silver added. Brent crude oil ended the week on a symbolic increase of 0.42%. Quotes have been unable to break out of the established range on the background of the lack of catalysts to break the strong resistance at 52.00.

Chart of the week:

dax chart
Dax chart

The economic data of the last week:

  • The Bank of China devalued the yuan
  • US July retail sales0.6% vs. 0.5%
  • US August consumer confidence index 92.9 vs. 93.5

 Forecast for the week August 17 – August 21

Stock market
The slowdown of the Chinese economy for some time to sow doubts about the possibility of the Fed rate hike. However, so far no clear signal to the fact that the American regulator is prepared to abandon his plans to start tightening monetary policy this year, no. The labor market situation remains relatively stable, the latest data on retail sales signaled healthy consumer sector. Of course, inflation remains a weak link. 
It is in light of this particularly important report on the consumer price index in the United States. Even a slight growth rate may be sufficient for the market again began to be put on the rate increase and possibly even as early as September. Against this backdrop, US benchmarks may show a decline. The primary objective of Dow Jones (YM) will mark 17080, Nasdaq (NQ) has a chance to drop to the level of 4416.50 and, further, to 4370.0. Do not forget about the minutes of the last meeting of the US Federal Reserve. His aggressive tone can only increase the pressure on the index. 
Commodity and raw market
The impression is that Brent crude oil is still “groped” bottom near the 48.10 level. Most of the negative factors, namely the decline in demand from China, whose economy demonstrates the slowdown of the eurozone, which is a net importer of oil, the probability of increasing the supply of “black gold” Iran, in the case of removal from the sanctions already incorporated into prices. The only thing at this stage could push down quotes Brent – strengthening of the dollar, but most likely will not be enough to break through the strong support.
And what is the probability of growth? If we look at the latest data on commercial stocks in the US, which showed a decline as well as information on the reduction of production volumes in the United States, we can assume that the preservation of such dynamics will provide moderate support for black gold. Therefore, in the coming week from the Odd from the Energy Information Agency (EIA) will remain in the spotlight. Especially after the data from Baker Hughes reflected that by the end of the week the number of working rigs in the United States has not changed, remaining at 884.
And this, despite the fact that in the second quarter the main slate miners suffered losses, with an average oil price of 58 dollars per barrel and it is quite possible to wait for the folding of the active working drilling. Such dynamics could indicate only one thing: the opposition of OPEC and “slate” continues. But at this stage it is unlikely to be enough to break one of the boundaries of the established range (48.10 – 52.00). Rather, the quotes of “black gold” and next week continue to move within it.
Copper (HG) after the reaction to the decision of the Chinese central bank to devalue the yuan and the weak data on industrial production, to the end of the week could develop upward correction. However, at this stage we do not expect that growth will be sustained. It is possible that the quotes from the level 2.3890 resumed its decline. Push them down may, among other things, data on activity in the industrial sector in China. If the index will remain below the level of 50, it will demonstrate the probability of a further slowdown in the sector. Given that the Celestial Empire is the largest consumer of copper in the world (it accounts for about 48%) could increase concerns the reduction in demand for the red metal. In this case, quotes can be reduced to the level of 2.2935 with a further target at 2.2260.
Warning: Profitability in the past does not mean profitability in the future. Any projections are for informational purposes and do not guarantee the results obtained.
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