All eyes will again be on Shanghai later this morning to see if Chinese investors are convinced the big rebound on Wall Street (finally) can be sustained across the rest of today, or whether local concerns will again triumph.
Our market will open up more than 1.5% higher (around 80 to 90 points) this morning after Wall Street surged in the final hour, instead of fading, as it did the day before.
Wall Street closed up between 3 and more than 4%. Gold and oil fell however. And the Aussie dollar hit a new six year plus low of 70.75.
But will all this be enough to convince Chinese investors to become more confident?
Shanghai ended down 1.3% yesterday after trading widely and that scepticism about the strength of investor confidence spread into Europe where markets were again nervy.
But an early morning briefing by a senior member of the US Federal Reserve (the US central bank), during which the timing of the first rate rise since 2006 was seemingly pushed back from next month, triggered a big surge on Wall Street which continued through the day and grew in the last hour.
His comments were widely seen as pushing the timing of the rate rise back to November, according to many US commentators this morning. But economic data out yesterday (for durable goods) rose 2% in July, less than expected.
But orders for core capital goods jumped more than 4% and economists saw that as a sign US business investment is stronger than expected – and normally that would have been seen as adding to the pressure for a rate rise.
But the weakness in stockmarkets and commodities, and weak demand offshore, is seen as forcing the Fed to wait.
The S&P 500 index ended a 6-day losing streak to post its biggest one-day gain since November 2011, up 3.9% at 1,940.53. The Dow jumped 3.95% (or more than 600 points) to 16,286.84 and the Nasdaq Composite surged 4.2% to 4,697.54, thanks to a rebound in tech stocks.
In the briefing, New York Fed President William Dudley, (one of the most senior of all Fed officials apart from the chair and vice chair), seemingly backed away from supporting an interest-rate rise at the central bank’s September 16-17 meeting.
He pointed to the wild swings in global financial markets, the slowing Chinese economy and falling commodity prices which he said have increased the “downside risks” to the US economic outlook.
“The bottom line: we have been assessing domestic and international financial markets closely in terms of their implications for the U.S. economic outlook and we will continue to do so. From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago,” Dudley said.
That was music to the ears of Wall Street traders who piled into the market and didn’t stop until the close. The upshot will be a strong start to trading across Asia this morning, starting in NZ and Australia, then Japan, Hong Kong and finally Shanghai after 11 am.
But China will be closely watched – it has resisted positive sentiment and fallen 22.8% in the past five trading sessions – a bear move in itself.
From its June 12 peak, the Shanghai Composite is now down 43.3%, and Shenzhen stocks are down 46%. Year-to-date, the indices are down 9.5% and up 19.8, respectively.
