Shenzhen Composite Index Bounces Strongly, Re-Tests Resistance

After the sharp slide seen on Monday, the Shenzhen index recovered ground strongly and moved to re-test the key resistance area just above 2,050 as China’s B shares stabilised.

US equity indices were slightly lower on Monday as lower energy prices sapped some support, although conditions were more robust in Asia on Tuesday with a recovery in risk conditions and the Nikkei index made small-scale gains.

The People’s Bank of China (PBOC) provided additional liquidity to money markets on Tuesday after draining funds on Monday and this provided some net support to the market.

There was stabilisation in the B shares on the day, which had a significant impact in supporting confidence, after the sudden decline late on Monday pulled the Shenzhen index sharply lower.

The yuan regained some ground in early trading, but weakened during the day to a fresh six-year low against the US currency despite a slightly softer tone surrounding the US currency.

There was underlying caution ahead of the latest Chinese GDP data due out on Wednesday with the latest industrial production and retail sales data also scheduled for release.

After opening fractionally lower, the Shenzhen index moved steadily higher during the morning session. The market was also able to resist pressure from profit taking following the break with a further net advance sustained into late trading.

The index closed 29.04 points and 1.43% higher at 2,056.59 with no significant change in volumes from Monday’s levels. The ChiNext index more than recovered Monday’s losses with a gain of 1.55% on the day as it moved close to September highs.

Reaction to the latest US CPI data, especially in the bond market, will be significant for global equities. The latest Chinese GDP data will also be an important focus, although the overall impact on monetary policy is likely to be limited.

Just after the market close, the latest new loans data was released with a stronger than expected figure of CNY1,220bn for September from CNY949bn the previous month, which should underpin short-term confidence in the growth outlook.

Shenzhen Composite Daily Chart

shenzhen18-10-16

EconomicCalendar.com provides the latest economic news and financial events that move the market.

About the author

Tim Clayton

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.

Indices

NamePrice($)CommentChange($)Change %
S&P 5002,260+13.34+0.59%
NASDAQ5,445+27.14+0.50%
NYSE11,192+41.83+0.38%
FTSE 1006,954.21+22.66+0.33%
DAX11,203.63+24.21+0.22%
CAC 404,764.07+28.59+0.60%
EURONEXT 100913.06+5.79+0.64%
Nikkei 22518,996.37+230.90+1.23%
HANG SENG INDEX22,760.98-100.86-0.44%

Commodities

NamePrice($)Change($)Change %Comment
Light Sweet Crude Oil Futures,D47.48-0.01-0.02%
Gold Futures,Dec-20161,158.40-11.40-0.97%
Silver Futures,Dec-201616.82-0.20-1.20%
Copper Futures,Dec-20162.65+0.03+0.95%