China stocks higher despite event risks

It’s quite clear that China did not receive the memo that the FOMC minutes will be released later today. Chinese equities received another shot in the arm, this time coming from the tech sector.

The old Shenzhen Stock Exchange stands in the Luohu district of Shenzhen
Source: Bloomberg

News that the Shenzhen Stock Exchange had sharply increased the number of stocks included in the Shenzhen Component Index to 500, from 40, to improve representation which boosted the share prices of technology companies.

Under the reconstruction, the weight of information technology will rise from 12% to 18%, becoming the heaviest-weighted industry, at the expense of finance and real estate industries.

While the CSI 300 Index surged past 4800 points, traders quickly realised that the news benefited mostly Shenzhen indices.

This saw CSI 300 shaving off strong gains into close as Shenzhen equities has a much lower weightage of 27% in the index, compared to the 73% occupied by Shanghai counters.

On the other hand, Shenzhen Composite (SZCOMP) goes from strength to strength, rallying to another record high. Meanwhile, the Hang Seng Index (HSI) closed lower, pressured by falls in heavy-weight Tencent, China Mobile, AIA Group, and HKEx. These counters also have one of the highest short-sell turnovers.

Buy dollar, sell euro?

The selloff in euro continued today as traders perceived the recent run-up providing attractive levels to enter into shorts. Soft ZEW economic sentiments, rising concerns over Greece’s predicament, and ECB plan to step up QE purchases weigh on the single unit. EUR/USD briefly tested below $1.1100 to near three-week lows, before running into strong support on approach of $1.1050.

The Japanese yen weakened below ¥121.00 at one point. USD/JPY was trapped in consolidation for a fairly long period before seeing a strong up-move today, triggered by a positive GDP reading.

Correspondingly, Nikkei closed at one-month highs. However, the short candlestick seen on the daily chart suggests that further upward momentum may be difficult. Nonetheless, the index is consolidating on the right side of 20,000 and additional signs of improvement in the economy should attract buyers.

Nothing much here, moving along, STI

Currently it is not easy to see trading cues on either side in the Straits Times Index (STI). The STI continues to move sideways within 3430 and 3490 since the start of May and traded below 3450 today. But we see good support at 3400 and if the index is able to stay above this level, there is a strong chance for a retest of the key 3500.

Likewise, the MSCI Singapore Index is supported above 385 and a subsequent move towards 400 may trigger more bullish momentum. Trade volume of 1.5 billion units worth SGD 964 million was recorded in the Singapore stock market as of 5pm, implying a higher average price of SGD 0.64 compared with SGD 0.54 in the previous session.

All eyes on the Fed minutes

Markets will be keeping its eyes peeled on the FOMC minutes, with most expecting it to be a tad dovish. Chicago Fed President and FOMC voter Charles Evans said a hike in US interest rates is not likely to be appropriate until early 2016 as inflation is too low.

A Morgan Stanley Index (MS M1KE Index) shows that the market expects the first rate increase to come in about 7.5 months as of 18 May 2015, which means a December liftoff. Looking ahead, a speech on Friday from Fed chair Janet Yellen will be closely watched, it is widely expected that she will take into account the April economic data.

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