Japan and China to dominate headlines

Shinzo Abe’s ruling coalition had a landslide victory in the upper house election yesterday.

This means investors can expect Abenomics to continue, and focus on whether the more difficult parts of policy reforms will take place, such as the two consumption tax hikes, changes to labour laws and high corporate tax rate. Regardless, the election win is good for Japan stocks and we should see the bourses trade higher.

China’s HSBC manufacturing PMI data is expected to show contraction at 48.5 (consensus), below 50 on Wednesday 24 July. In the continuing effort to restructure the economy, the country is taking further measures in structural reforms, with the removal of the floor on borrowing costs over the weekend. This means companies with better credit ratings could get better rates and the country will no longer fund state-owned enterprises through the fixed rates. While we don’t expect much from the Chinese stock market, repercussions will be felt in the regional bourses and currencies on signs of any further slowdown.

Commodities

Gold is flying this morning, gaining more than 1.5% as Ben Bernanke finally got the message through to investors that stimulus is here to stay. Gold is testing the wedge resistance of $1320; we will watch whether this level will be breached for the rally to be sustained, with the next price level of $1340.

Copper prices have moved higher this morning to $306; we are watching it closely to see if it breaks the $307 resistance level, which was previously a support. Breaking this will mean copper prices have legs to move higher to $309.

WTI and Brent are now trading at parity; futures prices for WTI September have gained this morning on lower inventories. We are in the driving season and expect to see prices for WTI to be sustained at these higher levels.     

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