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A September rate rise is now 'less compelling'

Chinese stock markets closed down with a ‘relative calm’ yesterday - 1.5% - in Shanghai and Shenzhen. This presented traders in the US with the right signals to put a floor to the 9% slide in stocks over the past successive sessions. Coupled with the first signs of “Fedspeak” (from Fed Governor William Dudley) suggesting that the case for a September rate rise is now ‘less compelling’, traders took the cue to buy. Major indices in the US enjoyed a rare risk-on ‘intermission’ to the pummeling that stocks received this past week. The S&P gained 3.9%, registering its biggest rally since 2011. However despite this record move, both the Dow and S&P 500 remain in correction territory. Flight to safety hideouts like the VIX gave up as much as 6.5% (Volatility Index Sept 2015) while gold slumped to its lowest level in over a week as traders played into the stock market’s bounce. Meanwhile crude took another slight hit last night, despite release by the IEA showing a surprise drop in inventories last week. WTI fell towards its low of USD38 per barrel. From the chart below, apart from a seven-day second degree counter-trend consolidation in early July, crude’s fall from USD60 in end June has been a one way ride. The current consolidation at this support of USD38 is critical with a bounce here being a possibility as we reach a point of inflexion at the cross of trend lines. A break below the red line could accelerate the selling while any bounce above the blue line may bring short covering for this commodity.


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