Chinese Data Bounce

Unleashing global “animal spirits”

Highlights

• Equities loved the U.S. retail sales numbers, but the headline masks a contraction in real terms and missed auto industry weakness

• Questions remain over China’s economic trajectory, despite an upside IP surprise which spurred Asian stocks and global commodities

• The ECB yesterday communicated an unequivocal pause after another 25bp hike, prompting dovish price action in European markets

• “Triple-witching day” ahead for markets, with $4 trillion worth of derivatives contracts tied to stocks, index options and futures, set to expire

While We Were Sleeping

What a difference a day makes! After slipping below key technical levels on Wednesday, we saw the Dow pop +1.0% yesterday on more soft-landing hopes, while the S&P 500 and Nasdaq composites both rallied +0.8% in yesterday’s action — all three major stock indexes regaining their 50-day moving averages in the process. The biggest move of the day came in the small-cap Russell 2000 index which jumped +1.4%, thereby closing back above its 200- day moving average. The see-saw/range-bound pattern continued today with the triple-witching hour upon us ($4 trillion worth of derivatives contracts tied to stocks, index options and futures, set to expire, this coinciding with a rebalancing of the benchmark indices… including the S&P 500). Note that since 1990 the S&P 500 has slipped back in the week following the September triple-witching nearly 80% of the time, with an average drawdown of around -1%.