A recent deterioration in US-China relations spilled into the stock market in second week of May after the US Senate passed a bill that would require additional oversight for Chinese stocks listed on US exchanges. The crux of the possible legislature is a stipulation that would require Chinese companies to delist from the likes of the Nasdaq 100 or other US exchanges if certain requirements are not met in a given time period. As a result, Chinese stocks like Alibaba and Baidu fell under pressure while the FXI ETF a basket of Chinese companies on US exchanges also declined.
Regardless, history would suggest China will retaliate to the announcements which could send the conflict spiraling. Either way, damage has already been dealt as investors begin to weigh the risk and reward prospects of holding Chinese stocks on US exchanges.
Equities were flat to higher Friday with defensive sectors leading as markets saw progress on Covid-19 vaccines but confronted rising US-China worries. The Dow industrial index was flat (down 0.037%), the S&P 500 rose 0.2%, and the NASDAQ was up 0.4%.
Monday, NASDAQ 100 reach 9,413.99 +36.00 (0.38%). The NASDAQ 100 has pulled back significantly during the trading session on Thursday as the 9500 level has offered far too much in the way of resistance. While S&P 500 showed a modest continuation of growth on Monday, May 25, of 0.24% 2020 to, 2,955.45. The Nasdaq 100 and S&P 500 most likely track this theme closely as market participants attempt to forecast next steps. While bubbling tensions may not be enough to singlehandedly reverse the rally, a new US-China trade war amidst an ongoing pandemic could seriously undermine market sentiment.
NASDAQ 100 starting from the rally highs at 9,515 points, a bearish engulfing pattern in the candlestick chart initiated a breather on Thursday. A daily close above the high would generate a follow-up buy signal towards the all-time high at 9,737 points as part of the intact recovery trend. The long-term upward trend would only be confirmed with a sustained rise above the latter brand. However, the derivable immediate potential would initially be limited to the return line of the long-term trend channel at currently 9,909 points and the upper Bollinger band in the weekly chart at currently 10,110 points.
By comparison, the German DAX 30 looks to have a relatively quiet week ahead. On Monday it has reached 11,177.56 or up by 0.94%. European stocks were mixed with the Stock Europe 600 Index ending flat. The UK’s FTSE 100 dropped 0.4% while France’s CAC 40 was little changed. While the index will certainly track broader risk trends foreseeable risks at the time being are in the form of scheduled data releases. German inflation, growth, consumer confidence and retail sales data are just some of the big-ticket prints to look for the last week of May, alongside a series of reports expected from other Eurozone members.
Even poor results from the upcoming data may not be enough to immediately reverse the tide for the DAX 30 after German and French politicians came to a surprise agreement third week of May, which boosted their respective indices. The announcement was a notable step toward unity in the single-currency Euro project and the event should provide a sense of stability in the weeks ahead.
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