China Growth Downgrade Scales down Effects of Strong US NFP

2016-03-07 05:09:00

Nathalie Huynh, Contributor

Talking Points:

Gold subsided to growing chances of US rate hike, although downside is supported
Oil surged with risk rally and news of production curtails in US and OPEC
Copper calmed down after China lowered growth target to 6.5%

A strong U.S. Non-farm Payrolls (NFP) on Friday and rumours of China’s intervention into stock market last week sufficiently ignited risk buying in Asia which last through today. While National People’s Congress and the Chinese People’s Political Consultative Conference are happening, stabilising efforts are reasonably expected.

Positive mood is also ripe after last month’s changes to stock and bond quota system in China relieved foreigner’s investment restrictions. A stock connect trading link between Shanghai and Hong Kong also started operation.

Oil price surged with equities and other assets after the unexpected rise in NFP signalled a recovery in US manufacturing. It is holding on to the 36 handle after a 2-month high of 36.72 at early Asian session.

Oil will likely gather support from more news of a coordinated production freeze.The latest update from Russia stated that OPEC members, Kazakhstan, Azeris and Azerbaijan will meet sometime late March-early April. In the US, shale producers cut active rigs for an 11th week in a row, reported by Baker Hughes on Friday.

Gold pricealmost entered a bull market with 19.44% gains from 1071.57 on January 15 to a high of 1279.88 on Friday. The prospect of a pending US rate hike later sent bullion down to the middle of 1200s range where it remains today. Revived market’s expectation of interest rate hikes may accelerate gold volatility up to the FOMC’s meeting on March 15-16. The downside is fairly supported.

Copper price calmed today after reaching an almost 4-month high at 2.3040 on Friday as part of a risk rally. This biggest price advance since 2011 may become short-lived however, as China lowered growth target to 6.5 percent through to 2020. This marks the slowest growth in a quarter century and a downgrade from last year’s 6.9 percent. Industrial metals also fell in London.

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GOLD TECHNICAL ANALYSIS – Gold price cooled down on a second day and momentum waned, even as moving averages are forming an uptrend signal. Long term potential remains however short term prospect has become uncertain. Those with long positions should closely watch for break of 20-day MA at 1227.6 or support trend line.

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper price climbed back up over the support trend line, a sign that the rebound has intensified. From here on the way is pretty clear towards the high of October 2015 at 2.4368. Firm support level is at a previous top and resistance, at 2.1485.

Daily Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS – Oil price is heading up to 38.36 resistance level after breaking through 34.25 previous resistance. This rebound effectively ended the downtrend of October - February. 34.25 level turns into an immediate support and will likely hold in the short term.