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China GDP, Bitcoin (BTC) & S&P 500 INDEX (SPX) – FinTwit Trends to Watch

China GDP, Bitcoin (BTC) & S&P 500 INDEX (SPX) – FinTwit Trends to Watch

Warren Venketas, Analyst

FINTWIT ANALYSIS

  • China GDP in focus next week.
  • Futures based ETF a good or bad thing for Bitcoin?
  • Earnings season spurs SPX bulls.
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NEXT WEEKS Q3 CHINA GDP DATA UNDER PRESSURE

Chinese growth projections for 2022 and 2023 have been revised marginally lower in the recent International Monetary Fund (IMF) Economic Outlook. For 2021 the figures are unchanged at 2.3% (see graphic below).

IMF China growth forecast

Source: IMF

Q3 GDP is scheduled next week (see calendar below) which is expected to come in significantly lower than prior results.

CHINA ECONOMIC CALENDAR

China Q3 GDP economic calendar

Source: DailyFX economic calendar

A few contributing factors are responsible for this forecast including a reduction in Chinese manufacturing. Energy supply constraints have disrupted manufacturing and hurt exports as China clamps down on carbon emissions. A drop in exports have dampened the Chinese stock market and reflected in recent GDP prints as well. The chart below shows the high positive correlation between the aforementioned factors.

CHINESE EXPORTS VS GDP VS FTSE CHINA A50

China GDP, Bitcoin (BTC) & S&P 500 INDEX (SPX) – FinTwit Trends to Watch

Chart prepared by Warren Venketas, Refinitiv

The Evergrande concern is still very real despite the PBOC stating earlier today that the risks facing the property giant are “controllable”. Contagion fears are becoming a reality as other Chinese property firms like Fantasia Holdings having missed bond payments. The Chinese 5-year CDS chart represents the markets increasing fear of default – A CDS is an instrument used to insure against default, and the rise in price reflects an increasing cost of insurance.

CHINA CDS 5-YEAR

China CDS 5-year

Source: CNBC

Ratings downgrades on several Chinese property developers have exacerbated the situation by making it more expense and harder to borrow. These factors may see Chinese GDP come in under expectations next week.

SEMINAL MOMENT FOR BITCOIN!

Bitcoin is back and quickly approaching April 2021 all time highs. According to Bloomberg, impetus for the rally came from an announcement by the U.S. Securities and Exchange Commission (SEC) to allow for a futures based ETF to commence trading from next week. This is a big move in the world of cryptocurrencies as Bitcoin moves into the regulated space. The futures based ETF will allow for more people to gain exposure to the digital coin and could lead to Bitcoin losing the volatile appeal that many find attractive; as well as the original decentralized (unregulated) association. For now, we are seeing a bullish uptick but could this decision be the downfall of Bitcoin in the long-term?

BITCOIN DAILY CHART

Bitcoin daily chart

Chart prepared by Warren Venketas, IG

Technically, Bitcoin breached the $60000 mark earlier today and a candle close above could spark further upside towards the $64862 all time high. The Relative Strength Index (RSI) is in overbought territory but this may not be enough to suggests a pause or drop in Bitcoin prices.

Key resistance levels:

  • 64862
  • 60000

Key support levels:

  • 55000
  • 20-day EMA (purple)

U.S. TECHS PUSH SPX HIGHER AS EARNINGS SEASON GETS UNDERWAY

The SPX index is gathering momentum after falling on the back of rising treasury yields which negatively impact equity valuations forecasts for tech stocks (large component of the index) when interest rate expectations increase. Looking at the U.S. 10-year Treasury yield we can see price action trading under 1.6000 this week contributing to the tech rally and rotation out of financials.

U.S. 10-YEAR TREASURY YIELDS

U.S. 10-year Treasury yield

Source: Refinitiv

Furthermore, earnings season has taken center stage shrugging off inflation concerns for the time being as better than expected earnings are forecasted. This has been the trend since Q2 2020 as shown in the graphic below. Despite higher prices and supply bottlenecks, the pent up demand as a result of COVID-19 is allowing for many companies to pass on these higher prices delivered from the supply-side, to the end consumer. That being said, this positive outlook may be seasonal after which we may see a slump in equity prices going into 2022.

SPX growth estimate vs actual

Source: FactSet

The future outlook for U.S. equities are highly dependent on the actions of the Federal Reserve especially under the current inflationary backdrop. The risk of hiking rates prematurely could negatively effect the already struggling U.S. labor market so a more considerate approach is likely. As long as this the environment remains accommodative stocks are expected to continue to rise. From a sector perspective, I estimate regular rotation as macro data influences come and go – as witnessed during the recent move out of techs.

Boost your stock market knowledge with our articles on the types of stocks available, how equities impact the economy, and getting started with stock trading.

SPX DAILY CHART

SPX daily chart

Chart prepared by Warren Venketas, IG

The daily SPX chart outlines the fundamentals mentioned above and could creep above the long-term trendline support now resistance (black). Looking forward there is potential for a bullish crossover (20-day EMA crossing above 50-day EMA) which is highly probable considering the optimistic earnings outlook.

Key resistance levels:

  • 4550.00
  • 4500.00

Key support levels:

  • 4400.00
  • 4305.33

--- Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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