Recap: Week Ending August 14, 2015
Equity markets moved marginally higher last week as high volatility occurred. The S&P 500 led the way higher in the United States, climbing 0.67% to close the week at 2,091.54. Last week the S&P experienced a wide range trade, trading up to 2,105.35 and down to a low of 2,052.09. On the flip side, the NASDAQ 100 index was the lagging index in the United States, closing up only 0.24%. The gains in equities were not seen in Canada as the Toronto Stock Exchange Composite Index, or TSX, closed the week down 0.17%. Such mixed and volatile trading conditions come as China devalued their currency last week. Many are considering this devaluation as an act of currency wars, making the Chinese currency beneficial to exports at the cost of foreign buyers. It must be noted that the devaluation does come days after recently released Chinese export data showed a big decline. Taking this into consideration, such a move is an attempt to kick start the slowly moving Chinese economy. As a result of the news, equities around the globe fell on fears of a slowing China. When the news broke Tuesday, the S&P 500 tumbled 18 points to close the day at 2,084.07. A weaker China can show internal weakness in the global economy as China is commonly seen as a strong manufacturing nation for many countries such as the United States. The surprise move lower in the Chinese currency also sent shockwaves across various global markets.
Gold moved higher as a direct result of the push lower in the Chinese currency as many sought safety on what some call a haven asset. Last week gold closed higher for the first time since June. Last week gold settled up $19.90 or 1.82% to close the week at $1,113.20. This most recent news out of China may be just what is needed to kick start gold to get out of its multi-year downward push. As the Chinese currency moved lower, the US Dollar moved higher against major global currencies; however, the move higher was shortly lived. Last week the US Dollar Index closed the week down 1.09 or 1.11% to settle Friday at 96.53. The move lower in the US Dollar Index comes as investors fear that the Federal Reserve of the United States will not increase interest rates as the Chinese economy appears to be weak. Higher interest rates indicate that a currency should and most likely will move higher.
From a technical analysis standpoint, the Dow Jones Industrial Average experienced a death cross last week. A death cross is when the 50 day moving average crosses below the 200 day moving average symbolizing that the prices in the past 50 days on average are below of those the past 200 days on average. Such a signal is bearish for the market and reflects the overall trend of price activity in the Dow. It must be noted that both the S&P, as well as the NASDAQ 100, are not experiencing a death cross. It must also be noted that currently the TSX is experiencing the cross of death. Even though the signal occurred almost a month ago, the index is not much lower from where the signal occurred.