It was another roller coaster session over in the U.S. last night. Investors were as confused as they can be and this is what the trading session has interpreted. All the major indices were giving their extreme signals and traders could not resist but to buy them. On top of that, we had a positive news out of China, that the country’s central bank has cut the interest rate once again. The market participants were immensely joyful on the back of this news and this lifted their sanguine feather.
Nonetheless, the confidence was very much short lived as investors were engaged by the angst of the Chinese debt problem. This pushed the U.S. markets lower and reversed all the early hours gain and the indices closed firmly in a negative territory with a loss of over 1%.
However, the Asian markets are still very much focusing on the bright side of the sentiment equation on the back of the People Bank of China’s rate cut decree. For them, the emphasis is towards the central bank’s commitment and it appears that they are confident that the bank will do whatever it takes to restore the confidence. However, at the time of writing this article, the Shanghai composite’s gains are evaporating at a rapid pace and this begs the question if we are going to experience the same pattern of trading which we had on Wall Street. We believe that investors are increasingly becoming more anxious about the Chinese debt problems along with the Chinese economic growth. A very dangerous cocktail.
European futures are also trading firmly in a negative territory. Over in Europe, investors are going to set their mind frame that the People Bank of China is still not doing what is required of them to restore the confidence. However, the reality is that we are in a healthy correction mode and any excuse will be used to drive the stock prices lower until investors will finally see the valuation becoming attractive again.
Back in the U.S., the focus will also be towards the upcoming economic data which will drive the interest rate hike chatter. The U.S. durable goods number data is due later this afternoon and the forecast is for 0.3%. The stout number will confirm that the U.S. consumers are spending confidently.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam