News Column

MARKET ANALYSIS: News Of Chinese Market Reforms May Generate Positive Sentiment

May 12, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Monday, with stocks likely to move to the upside after turning in a mixed performance last week. The upward momentum is partly due to some strength overseas, where the markets have benefited from news of Chinese market reforms designed to increase liquidity.

"Optimism about capital market reforms in China helped markets to look past the farce of a referendum in the Donetsk region of Ukraine," said Peter Boockvar, chief market analyst at the Lindsey Group.

He added, "While vague and stated 6 months ago after the Chinese plenum, investors seized on the Chinese State Council repeating their desire to further liberalize China finance in areas such as IPO's and foreign investment in state owned companies."

Nonetheless, concerns about the situation in Ukraine may help to keep early buying interest on Wall Street somewhat subdued.

Pro-Russian separatists in the Donetsk region of eastern Ukraine have claimed overwhelming support for autonomy, stating that preliminary results showed nearly 90% of voters in the region were in favor of self rule in a referendum held on Sunday. The referendum is seen as a potential prelude to annexation of the region by Russia, as was seen with the Crimea region in March.

A lack of major US economic data may also keep some traders on the sidelines ahead of the release of key reports on retail sales, homebuilder confidence, industrial production, and producer and consumer price inflation later in the week.

Stocks fluctuated over the course of the trading day on Friday but managed to end the session moderately higher. While a lack of major catalysts contributed to choppy trading for much of the session, the Dow still ended the day at a new record closing high.

The major averages moved to the upside in the final of trading, closing in positive territory. The Dow edged up 32.37 points or 0.2% to 16,583.34, the Nasdaq climbed 20.37 points or 0.5% to 4,071.87 and the S&P 500 inched up 2.85 points or 0.2% to 1,878.48.

For the week, the major averages turned in a mixed performance. While the Dow rose by 0.4%, the Nasdaq tumbled by 1.3% and the S&P 500 dipped by 0.1%.

Commodity, Currency Markets

Crude oil futures are climbing USD0.83 to USD100.82 a barrel after slipping USD0.27 to USD99.99 a barrel last Friday. An ounce of gold is trading at USD1,301.10, up USD13.50 from the previous session's close of USD1,287.60. On Tuesday, gold edged down USD0.10.

On the currency front, the US dollar is trading at 101.96 yen compared to the 101.86 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at USD1.3769 compared to Friday's USD1.3758.

Asia

Stock markets across the Asia-Pacific region turned in a mixed performance during trading on Monday. While weak data weighed on Japanese stocks, Chinese shares rallied amid the news of the capital market reforms.

Japanese stocks lost ground after official data showed Japan's current account surplus shrank to a 30-year low as a result of slower exports and rising imports of fossil fuels. The report showed a current account surplus of 116.4 billion yen in March versus expectations for a surplus of 347.7 billion yen.

The benchmark Nikkei 225 Index showed a lack of direction over the course of the trading day, bouncing back and forth across the unchanged line before closing down 50.07 points or 0.4% at 14,149.52. The broader Topix Index shed 0.6%.

Australia's All Ordinaries Index moved to the upside in early trading but was unable to sustain the upward move and subsequently turned lower. The index remained stuck in the red for the remainder of the session before closing down 13.00 points or 0.2% at 5,429.00.

Meanwhile, Hong Kong'sHang Seng Index reversed early losses to end up 398.62 points or 1.8% at 22,261.61, and China's Shanghai Composite Index jumped 41.74 points or 2.1% to finish at 2,051.87.

The strength came after China's state council pledged to push ahead with a broad range of capital market reforms designed to increase liquidity.

Europe

The major European markets have moved to the upside on the day. While the French CAC 40 Index has edged up by 0.1%, the UK'sFTSE 100 Index has risen by 0.4% and the German DAX Index has surged up by 1%.

Some earnings and deal news have influenced sentiment, while mining stocks in the region have been buoyed by a positive broker recommendation.

In economic news, the Confederation of British Industry upgraded the UK economic outlook as the recovery continues to take hold. The business lobby forecast 3% economic growth this year, up from the prior estimate of 2.6%. The growth forecast for 2015 was also lifted to 2.7% from 2.5%.

US Economic Reports

While the economic calendar for the week starts off relatively quiet, several key reports are likely to be in focus later in the week.

Investors are likely to keep a close eye on the Commerce Department's monthly reports on retail sales and housing starts as well as the Federal Reserve's report on industrial production.

Reports on consumer and producer price inflation, import and export prices, homebuilder confidence, and regional manufacturing activity are also likely to attract some attention.

The Treasury Department is scheduled to release its monthly report on the US budget at 2 pm ET. Economists expect a USD114 billion surplus in April compared to the USD36.9 billion deficit reported for March.



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Source: Alliance News


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