Bright Spots in Chinese Data Overshadow Trumps Threats

After two downbeat sessions investors are once again in a buying mood showing immunity to a whole host of reasons to remain bearish.

Following on from a higher close on Wall Street, European bourses are pointing to a stronger start as investors brush off rising US – Sino geopolitical tensions instead focusing on the bright spots in mixed Chinese data which provided further insight int the post-lockdown economic recovery.

Data from China was a mixed bag. A better than forecast industrial production reading showed that heavy industry was rebounding in the world’s second largest economy. However, the same cannot be said for retail sales, which declined a worse than forecast -7.5% in April. Although, this as a significant improvement on last month’s -15.8% decline. The improvement in industrial production indicates that stimulus measures are working. However, this will take longer to trickle down to improving consumer confidence and lifting sales.

What we can take away from the Chinese data and apply to other economies is that improvements in economic activity will be gradual.

Concerns over a second wave of infections which have weighed on sentiment over much of the week, continued to play out in China and South Korea where clusters of outbreaks are causing a problem. Fears of infections rising in Germany have also weighed on risk appetite as the economy gradually reopens.

Trump threatens to cut ties with China
The markets have largely brushed off Trump threatening to cut off relations with China. The flare up in US – Sino tensions come amid Trump’s efforts to pint the blame of the coronavirus outbreak on China. Whilst traders are sweeping these comments under the carpet today, it is highly unlikely that we have heard the end of this. The US – Sino relations theme could well hamper market sentiment across Q2.

German GDP & US Retail Sales
German GDP is expected to show -2.2% decline in the first quarter, a level last seen in 2009. However, this will only capture the start of lockdown with a 10% contraction forecast for the second quarter of the year.

Investors will turn their attention to US retail sales. Expectations are for sales to decline-12.5% month on month in April the month of lockdown. This comes after a 8.7% decline in March. With the US economy gradually starting to reopen, today’s data should represent the bottom for retail sales. This news will be largely priced in. Only a significant beat or miss could provoke a movement in the market.

Dax levels to watch:
After two days of losses, the Dax is trading below its 20 & 50 sma on 4 hour chart. Immediate support can be seen at 10372 (overnight low) prior to 10141 (yesterday’s low).
Resistance can be seen at 10560 (20 sma) prior to 10685/10700 (50 sma & high 13th May) and 11030 (high 11th May).

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.