Technical Analyst, Saxo Bank
Despite the ongoing trade war between the US and China, Chinese stocks have been trading sideways for the past two months between 12.000 and 13.000 (China 50 Index). Looking at the bigger picture, however, the China 50 Index is testing its medium- to long term strong support at around 12.000.
That level could prove to be crucial.
A close below that point could fuel a further sell-off, taking the Index down another 10-15% to support around 10.000.
Looking at the medium to to longer term, Chinese stocks are in a de facto bear trend. To demolish that picture, a break above 13.000 is needed.
The bear trend in the China 50 index has had a spillover effect into the Hang Seng 50. This index is very close to testing support around 29.125; a close below this support level could have widespread consequences.
First, a short-term drop to the 28.000 area is likely but there is not any real strong support before the 24.400-25.000 area. Worse yet, a massive sell-off could have worldwide contagion effects.
In the US, the Dow Jones Industrial index looks very similar (chart included below), although it is not as close to its crucial support around 23.360 (approximately 5% below current levels).
After a close below that support level, there is no strong support before around 20.000 – and the technical structure of the S&P 500 is similarly positioned.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
