Review for January 11-15: China makes its own adjustments. Forecast for the week on January 18 – 22

By | January 17, 2016

The situation on the Chinese stock market remains volatile, making adjustments to the dynamics of the American and European benchmarks, raw materials and commodity currencies. Shanghai Composite updated lows recorded in August 2015. Against this background, the US Dow Jones fell by 2.22%. NASDAQ lost 3.06%. Do not go to the benefit of indices and data on retail sales in the United States. The index fell by 0.1% against the forecast of 0.0%. The German DAX 30 (FDAX), which received an additional negative comments by the representative of the European Central Bank that they have already done enough in the direction of the stimulus, was down 2.61%. Hong Kong HSI has fallen to 4.91%.

On the currency market the USD / CAD (+ 2,69%), updating the maximum of 12.5 years at the level of 1.4553. The Australian and New Zealand dollars were under pressure, losing, respectively, 1.34% and 1.26%.

Raw materials and precious metals remained under pressure. Brent crude oil ended the week below the key level of 30.00, noting at least 28.80 dollars per barrel. Gold (XAU / USD) lost 1.38%. Silver (XAG / USD) fell by 0.11%.

Chart of the week:

brent crude oil chart

Brent crude oil chart

The economic data of the last week:

  • Monday. Canada: in December, the number of new 173 thousand vs. 200 thousand
  • Tuesday . UK: November, production in the manufacturing industry -0.4%, -1.2% lower than forecast at + 0.1%, -0.8%
  • Wednesday. China December Trade Balance 382.05 billion yuan more than the forecast 338.8 billion
  • Thursday. Germany: 2015, preliminary estimate of GDP 1.7% vs. + 1.6%
  • Friday. US December retail sales -0.1% vs. 0.0%

Forecast for the week on January 18 – 22

Stock market

Most likely, the Chinese theme will affect the dynamics of most tools and during the week, especially on Tuesday is scheduled for publication by a large block of macroeconomic statistics from China. The weak figures (in particular, a further slowdown in the economy and the decline in industrial production) can put pressure on the index HSI. A break below 18880 may open the way to the level of 17400. The fall is likely to continue as long as the PBOC does not present a clear plan to stabilize the situation.

Attention attracts and US statistics. Will be published data on the consumer price index in the United States. At this stage, the reports from the US markets will be evaluated very carefully, because they can shed light on the Fed‘s future actions in relation to monetary policy. Signs of a lack of power of the national economy may lead to the fact that the regulator will not rush to increase rates at the March meeting. Retail sales have proved to be weaker than expected. If more and published data reflect the continuing low price pressure, it can lead to the fact that the rhetoric of the Fed at the end of the January meeting will be soft enough. In the short term it can cause rollback Dow Jones (YM) to the level of 16450. Nasdaq (NQ) in this case, sets his sights on a return to the level of 4245.00.

Quite a large block of reports will be published and the German economy. This report on business sentiment from the institute ZEW, and data on the index of business activity in the industrial and service sectors. Also attract the attention and decision of the European Central Bank‘s monetary policy, or rather, the comments that will be performed during a press conference. Provided that the statistics will not be enough optimistic and the European regulator will give reason to hope that further easing is still possible, the DAX 30 (FDAX) may begin to rise, returning to the district level of 9920.0.

Commodity and raw market

Oil prices continue to update the lows. His contribution to the negative trend brings panic in the Chinese market and it seems that the lack of a clear plan of action at the national regulator. Technically, a break below 30.00 Brent gives reason to expect short-term reduction in the area of level 25-26 dollars per barrel. And in the current environment, such an outcome is not excluded. A key factor that puts pressure on quotes black gold is a surplus of supply in the region of 1.5 million barrels per day.

Therefore, the only factor which at this stage can provide support for Brent crude oil, a decrease in supply. Thus, while no obvious prerequisites for that. Despite the fact that existing prices make unprofitable production at a number of slate companies in United States production volumes for the last 5 weeks show a slight increase (and this against the backdrop of a sharp reduction in the number of operating drilling rigs). In addition, in the near future the market may see Iranian oil that will only increase the offer.

Tuesday will be issued a large block of statistics from China. This data on the rate of economic growth in the 4th quarter, and a report on industrial production and retail sales. Signs of further cooling of the economy of China could have a negative impact on the dynamics of copper (HG). It is worth remembering that China accounts for about 45% of world consumption of the red metal. Thus, weak statistics will provoke fear reduction in demand from major consumers. The negative macroeconomic background can only increase the panic that would have on the pressure of the metal with the immediate goal at the level of 1.8530.

Currency market

This week a decision on the monetary policy of the Bank of Canada will announce. The national currency during the recent weakening of the impressive exhibits, which in itself could serve as measures to stimulate the economy. However, Canada‘s economy is extremely sensitive to the dynamics of oil prices, since about 30% of revenue is made from the oil and gas sector. And the dynamics of “black gold” can have a negative impact on the country’s energy sector and, consequently, its prospects for growth.

Therefore, we can not completely exclude the possibility that the Bank of Canada will be decided on a slight reduction in the rate. If this happens, the short-term pressure on the Canadian dollar may increase, resulting in a pair USD / CAD in the area of 1.4700 level. If the regulator is quite aggressive, short-term rebound is possible down, but it should be viewed as an opportunity to enter long positions at a better price, because to turn up the oil loonie could remain under pressure against the US dollar.

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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