Equities Rebound As China Unrest Calms

Equities markets look to be stabilising today following initial losses suffered yesterday as traders reacted with caution to events in China. A wave of civil unrest spread across China on the back of 10 people dying in a tower fire in Urumqi province. Locals accused the rescue operation of being hampered by the government’s zero-covid policy and protests broke out calling for an end to the restrictions. These protests grew in number and location over the weekend and led to clashes between police and protesters with many suggesting the protests eventually became about more than just the government’s covid policy.

However, with Chinese authorities having seemingly put an end to the protests for now, the sell off in equities prices has paused and most indices are in the green today. Looking ahead, there is some speculation that the Chinese government might announce an end to its zero-covid policy, which would be firmly welcomes by markets. However, this appears at odds with the ongoing covid restrictions being announced in Shanghai today.

Away from China, the focus remains on December FOMC expectations. The Fed is widely tipped to opt for smaller 50bps hike. Any incoming data or Fed commentary this week supporting that view will likely allow equities room to move higher. However, any data or comments suggesting room for a further, large hike, will weigh on equities. US GDP on Thursday and Jobs data on Friday will be the headline events to watch.

Technical Views

DAX

The breakout in the DAX has seen the market extending beyond the recent 13672.31 level and the 14170.79 also. The rally has paused for now, just shy of testing the 14703.98 level and with momentum studies waning, some pull back might be seen. However, while price holds above the 14170.79 level, the focus remains on further upside near-term.

S&P 500

The S&P continues to grind higher within the bullish channel which has framed the rally off the YTD lows. For now, price is holding above the 3910 level and while above here, the focus is on a break of the bearish trend line from YTD highs and a test of the 4153.50 level next.

FTSE

The rally in the FTSE is ongoing this week with price breaking out to its highest level since August. Price is currently stalled into a test of the bear channel top, having rallied almost 13% off the October lows, with the 7575.8 level sitting just above market. To the downside, 7362.6 remains key support.

NIKKEI

The rally off the September lows has seen the market breaking above the 27422.9 level. Price is currently testing the 28356.6 level resistance, following an earlier attempt at a breakout. Momentum studies are waning here, suggesting room for correction. However, while above 27422.9, focus is on a further topside break.