Review of August 17-21: a turning point in the market. Forecast for the week August 24 – August 28

By | August 22, 2015

Equity markets finished the week on a minor note. China has become the instigator of the fall and the outbreak of panic is not spared neither American nor European benchmarks. This Dow Jones (YM) and Nasdaq (NQ) fell, even though the neutral tone of the minutes of the last meeting of the US Federal Reserve, the publication of which is waiting for the beginning of the hike were revised to a greater extent in favor of December. NASDAQ has lost 7,43%, Dow Jones fell by 5.68%. Hong Kong HSI ended the week with a total of -8.14%, including disappointed weak statistics from China. The German DAX 30 (FDAX) has fallen to levels which are at the beginning of the year, having fallen in price on 9,39%.

The collapse in equity markets boosted demand for safer assets. Against this backdrop, gold has risen in price by 4.09%, rising to the level of 1160.44. Brent crude oil finished the week with a loss of 7.04%. Quotes updated at least 6.5 years, down to the level of 45.07.

The economic data of the last week:

  • The Bank of China has poured 120 billion yuan within the 7-day repo transactions – the maximum volumes to January 2014
  • Germany adopted the third package of aid to Greece in the amount of 86 billion euros
  • Bank of Kazakhstan abolished the binding of tenge to the dollar: the currency plummeted by 26%
  • China PMI Caixin index in production  47.7 lower than forecast 47.1
 Forecast for the week August 24 – August 28
Stock market
Overall, the US economy appears to be quite stable. But fears that the cooling of the Chinese economy will slow down the growth of the global economy do not go unnoticed. Against this background, it is possible that even important American reports will be left without due attention. And next week is planned many interesting releases. In particular, the data on orders for durable goods, an updated report on the growth rate of US GDP data on consumer confidence. Under normal circumstances, a strong statistics could support the benchmarks. But in a panic, most likely, it will cause a short-term pullback. It is also closely monitor the performance of Stanley Fischer at a symposium in Jackson Hole. This event is known that it central bankers often make allusions to his future actions (that at this conference, Ben Bernanke once said about the upcoming program QE2). If the deputy chairman of the Federal Reserve will understand that the controller is set to tighten monetary policy, a drop in US indices can only accelerate. The primary objective of Dow Jones (YM) will mark 15900, Nasdaq (NQ) may aim to reduce the level of 4083 and a further 3990. 

The latest statistics from China indicate a continuing slowdown in the economy of China. Against this background, there were rumors about the possibility of lowering reserve requirements (actual rate is 18.5%, which is quite high by world standards) the Bank of China already next Sunday (August 23). Such a decision can cause a short-term pullback Hang Seng (HSI) in the area of ​​23070 level, but to reverse the downward trend is the regulator’s decision is unlikely to. Therefore, correction, in our view, be regarded as a good entry point into short positions.

Commodity and raw market
Brent crude oil persists in the downward movement. There is still a major influence on the dynamics of black gold have a fear of increasing the imbalance of supply and demand on the world market. We can not say that they are unfounded. Macroeconomic statistics in China continued to witness a slowdown in the industrial sector, which gives reason to expect reduction in energy demand from China, which is the world’s largest importer. At the same time, OPEC countries increased their production to the highest level in 7 years – 32.5 million barrels per day. And Saudi Arabia is on the back of record production also increased its exports by 6.2%.

Plus, it is yet to take into account the fact that Iran is preparing to increase the volume of exports in the case of removal from the sanctions and the situation is really not too optimistic. At this stage, in fact, the main hope of the black gold is a natural growth factor. In the US hurricane season begins and, if they pass along the coast of the Gulf of Mexico, the chances of an upward correction is. Given the oversold asset growth will be waiting and if the commercial stocks in the United States according to the Energy Information Agency reflect the resumption of decline. At the end of the week attention is paid to data from Baker Hughes.

But in order to halt the fall of the oil, it will be necessary to reduce the number of drilling rigs operating for at least 10 – 15 units. In general, the probability of such an outcome is, as of the second quarter of the main slate miners suffered losses. Therefore, the longer oil prices held near the lows, the more likely the beginning of the active preservation of drilling. However, collectively the above mentioned factors can trigger a correction in the Brent area of ​​48.10 level (which last week was seen as a support).

Warning: Profitability in the past does not mean profitability in the future. Any projections are for information only and does not guarantee a result.

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