Despite poor Chinese data dragging global stocks lower this week, the market has still held support and can mount a rally this week.
CH 50: Weekly Chart
The CH50 index dipped below support and found buyers last week. The 13,000 level is the current line in the sand for further gains.
Data on Tuesday showed that China’s services activity fell to its lowest level in eight months in August, adding to worries about recovery in the world’s second-largest economy. Meanwhile, analysts at Goldman Sachs cut their odds of a US recession given cooling inflation and a still-resilient labour market.
In a report published on Monday, Goldman Sachs lowered its prediction of a recession over the next 12 months to just 15%. That’s in line with the historical average chance of a recession in any year. It’s also down from the Wall Street bank’s prior forecast of 20% and its 35% projection in March as the banking crisis erupted.
With the gloom surrounding China, a record selloff in Chinese stocks by global funds has dragged bullish positioning to the lowest level since October, with money managers unimpressed by stimulus measures already announced.
The negative sentiment could be a sign of a nearing bottom, and a rally through 13,000 in Chinese stocks could see a revival begin.
There are still hopes for global stocks, with excitement around AI, cash sitting on the sidelines, and Apple’s rumoured iPhone release coming next week.
Traders returned from a Labour Day holiday in the US but could not halt a -0.40% drop in the S&P 500 index. All eyes will now be on ISM services data in the US on Wednesday, which could confirm or reduce recession expectations in the world’s largest economy.
The Chinese stock market should be watched for a bounce above 13,000, which would then target the 13,550 and 14,400 levels.
