Markets seemed to be unconvinced by China's easing measures announced yesterday. DJIA erased initial bounce and ended -204.91 pts, or -1.29%, down at 15666.44. S&P 500 dropped -25.6 pts, or -1.35%, to close at 1867.61. DJIA dropped over -200 pts for the fourth straight day and that's the longest losing streak of this magnitude in history. Nikkei does rebound today and is trading up 240 pts, or 1.36%, above 18000 handle at the time of writing. But China Shanghai composite and HK HSI just fluctuate between gain and loss. In the currency markets, weakness in commodity currencies continue. Yen remains the biggest winner this week on risk aversion and that's followed closely by Euro and Swiss franc. Dollar and Sterling are stuck in the middle.
Despite PBoC's cut of interest rate and reserve ratio, some analysts noted that more actions are still needed as the monetary policy remained way too tight. The central bank announced yesterday to cut the one year benchmark bank lending rate by 25bps to 4.6%. That's the fifth rate cut since last November. The one year benchmark deposit rate was also lowered by 25bps to 1.75%. Meanwhile, the central bank removed the deposit rate ceiling for time deposits of maturity longer than one year. The reserve requirement ratio was lowered by 50bps to 18.0% for all banks. Some expected PBoC would cut the policy rate for another -25 bps in 4Q15, as GDP growth in 3Q15 should likely disappoint. But there are talks that the moves will come earlier and more aggressively.
DJIA dropped to as low as 15370 earlier this week then recovered. Technically, we'd expect limited downside in near term as the index is now close to medium term fibonacci level of 10404.49 to 18351.36 at 15315.65. Some sideway trading would likely be seen first. Even in case of further rebound, strong resistance would likely be seen mid way between 15315/18351, around 16800. At this point, based on current momentum, we'd favor that fall from 18351 is correcting whole up trend from 2009 low of 6169.95. And that means, the index would drop further to key cluster fibonacci zone of 13440/13814 at a later stage. But we'll look the the strength of the coming near term rebound to assess the chance of the bearish case.
On the data front, New Zealand trade deficit came in wider than expected at NZD -649m in July. Australia construction work done rose 1.6% in Q2. Japan corporate service price rose 0.6% yoy in July. Looking ahead, UBS consumption and UK CBI reports sales will be featured in European session. US will release durable goods orders.