Traders shrug off Moody’s downgrade of China

Despite the company lowering its outlook for China from stable to negative, stocks in Asia still soared. 

China flag
Source: Bloomberg

The move higher in Asian stocks has spilled over to the Western markets and investors are still hopeful for more stimulus from China. If anything, the lowering of its outlook for the country ramped up speculation that Beijing will act as the disappointing manufacturing and non-manufacturing reports at the start of the week painted a bleak picture of the nation’s economic health.

The jump in resource stocks in Asia overnight has been replicated in London as mining companies are linked with China, and traders are clearly hopeful of easing from Beijing. The short-term outlook for mineral extractors is positive as firmer commodity prices and assets stripping has helped them regain investor confidence, however the longer term outlook is still negative as the global demand is still fragile and the oversupply hasn’t been addressed.

The FTSE 100 has nearly recouped its losses in 2016 and bulls will be keeping an eye on 6200. The Germany 30 has dipped below 9800 but the upward trend is still intact and while it holds above 9623 its outlook will be positive.  

The stronger than anticipated ISM manufacturing data from the US yesterday has led to a stronger US dollar, and the Federal Reserve funds futures market is pricing in a 64% probability of a rate hike in December. Admittedly that isn’t overly hawkish, but considering it was less than 30% a few weeks ago it is a big shift in sentiment.

BlackRock is the latest finance house to warn about the dangers of a Brexit, and while GBP/USD is sub $1.40 its outlook will be negative. EUR/USD is still in the downward trend that has been in place since mid-February and since we are one week away from the European Central Bank meeting, pressure will stay on the currency pair.

Gold has pulled back as traders' risk-on attitude has taken over. The surge in stocks has prompted some mild selling of the metal but when you consider how far equities have come in the past three weeks the price of gold has still held up relatively well. If gold remains above $1217, we can’t rule out another push higher. Buyers will be looking towards $1234 and $1248.

The energy market is a touch softer today but it has been broadly moving higher since 11 February. US Crude will need to retake $35 and Brent will need to move above $37 before traders become more confident in the rally. 

FTSE 100 risers and fallers (as of 9.30am)

 

Company % change Index points
HSBC Holdings +3.26 +11.45
Prudential +1.95 +2.53
Shire +2.83 +2.45
BHP Billiton +3.36 +2.05
Aviva +2.69 +1.92

 

Company % change Index points
BT Group -1.63 -2.64
Reckitt Benckiser -1.2 -1.98
BP -0.73 -1.81
Royal Dutch Shell - A -0.64 -1.72
Diageo

-0.8

-1.47

 

The day ahead

Economic data:

1.15pm – US ADP employment (February): the forecast is for employment to rise by 218,700, up from 205,000.

3.30pm – US oil inventories: stockpiles are tipped to fall to 1.1 million barrels from 3.5 million barrels.

7pm – US beige book

Central bankers speeches:

3pm: Fed member John Williams is speaking in California 

Corporate reporting:

US: Costco Wholesale Corp, Abercrombie & Fitch Co

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