Following the release of Chinese data market sentiment is mixed!

Following the release of Chinese data market sentiment is mixed!

As always with Chinese data we need to take any figures with a ‘pinch of salt’ and on this occasion markets have mixed views as we see some divergence in risk sentiment across the asset classes.

00:11

Chinese manufacturing PMI overview

00:11

The speaker apologizes for computer problems and briefly introduces Chinese economic data, focusing on the manufacturing and non-manufacturing PMI figures. They explain that a PMI above 50 is positive, indicating expansion in the sector.

00:52

China’s economic recovery signals

00:52

The speaker discusses the economy’s progress despite challenges posed by the virus. There has been a noticeable rebound in China, and overall economic indicators are steady, suggesting a potential recovery in the global economy. The Australian market, as represented by the CSI and the Aussie, had been rising, reflecting optimism in the indices.

01:32

US indices and market sentiment

01:32

The Nasdaq has been performing strongly and leading the market. The speaker highlights the importance of analyzing related markets, specifically US indices like the S&P 500, to gauge overall market sentiment. They mention observing divergences during cross-market analysis, which helps confirm or question trends seen in Forex and indices trading.

02:09

Divergence in indices and yen buying

02:09

The speaker analyzes recent market behavior, noting that while the S&P 500 has declined slightly, the Nasdaq has been performing uniquely well. They discuss divergences where indices rise but the yen is being bought, which is unusual since typically a stronger market would weaken the yen. This suggests that forex movements, such as yen buying, can precede shifts in market sentiment. The speaker highlights that such signals may predict temporary reversals in indices like the Nasdaq, which recently peaked and then started to decline.

03:19

Impact of virus news on markets

03:19

The market experienced a sudden reversal influenced by news about the virus and its control, which affects whether economies will reopen and life can return to normal. Concerns about a potential second wave and the overall handling of the situation are creating uncertainty. Economic instability is further reflected in market movements, with the Nasdaq dropping significantly and the S&P also showing volatility. Additionally, Dow Jones futures have been moving, indicating broader market reactions, while the Dow itself has been lagging compared to other indices.

04:25

Tech sector driving Nasdaq strength

04:25

The Nasdaq has been performing strongly during the pandemic because it is heavily weighted with tech companies, which have become essential. Despite general market steadiness, there has been a divergence with the yen being bought even as the indices remained relatively stable.

04:56

Cross-market divergences explained

04:56

The speaker emphasizes the importance of observing when currency pairs move in lockstep, as this indicates solid market conditions. However, there will be periods of divergence, which signal risk. The Australian dollar and Japanese yen pair is highlighted as a proxy for this risk, noting that the Australian dollar strengthened following positive China PMI data, while the yen moved differently.

05:32

Forex markets signal sentiment shifts

05:32

The explanation focuses on understanding cross-market relationships, emphasizing that divergences can occur between markets. The forex market is identified as the fastest to reflect shifts in sentiment, with money flows into currencies providing immediate signals about changes or potential changes in market sentiment.

By Anna Coulling – creator of volume price analysis