Copper Continuous Contract (HG.F) & iShares MSCI Hong Kong Index Fund (EWH)

The November equity market rebound has continued in the last week, but at a more moderate pace. The S&P 500, for example has gained 7.4% in the last month, but only 0.95% of that has come in the last week. The S&P/TSX Composite, which has gained 5.2% in the last month only gained 0.4% in the last week.

Indices which led the rebound, such as the S&P 100 and the NASDAQ 100 appear to be encountering resistance near their summer highs. Meanwhile, the recovery appears to be broadening out, moving down the US food chain with mid caps and small caps breaking out to the upside. In addition, some of the countries which had been lagging recently such as the UK, Japan and China have all broken out in the last week.

Sector action has been similar with a number of the recent leaders stalling out near their summer highs, particularly Financials and Semiconductors. Sectors which have cleared their summer highs include Technology-Software, Aerospace, Homebuilders, Forest Products Consumer Staples, and Uranium. Energy, on the other hand, continues to pull back along with energy prices.

Economic news has slowed in the last week and may remain quiet through the upcoming US Thanksgiving holiday weekend. The main focus of business news has been US retailer earnings where clothing store chains have generally done well, but everyone else has disappointed on earnings, guidance, or both, leading to quite varied market reactions to results. For the next few days, the main focus is on Black Friday sales and mall traffic as an indicator of how much consumers are willing to spend in the key holiday season, the health of their finances, the impact of inflation and confidence in the overall economy. Canadian retail sales data also comes out on Friday.

The only other notable economic announcement this week is Flash PMI reports from around the world today and for the US on Friday. Next week focus starts to turn back toward the next Fed meeting with the Beige Book regional economic report and Core PCE inflation, the Fed’s preferred measure on the way. Treasury yields have been drifting downward this week despite ongoing hawkish commentary from Fed officials on inflation, which could be setting up for a showdown on the potential for rate cuts in 2024 when the next round of FOMC member forecasts comes out in mid December.

Canadian bank earnings week is coming up with results due from Scotiabank on Tuesday, TD, Royal Bank and CIBC on Thursday, and Bank of Montreal plus National Bank on Friday. It’s fiscal year end so investors may be looking for news on dividends in addition to the results and commentary related to the economy, loan losses, and capital markets. The US earnings calendar for the coming week is relatively quiet and dominated by smaller cap retailers and tech companies.

Throughout this year, China’s struggling economy has been simmering away on the back burner, quietly dragging on commodities and undermining expectations for resource demand. In the last month, a number of positive economic reports have come out suggesting that its economy and demand for resources may finally be improving including GDP, imports, new loans, retail sales and industrial production. In this edition of Equity Leaders Weekly, we look at how the prospects for a recovering China appear to be having a positive impact on China-sensitive markets like Hong Kong stocks and copper.

With its wide variety of applications in industrial and consumer products, Copper (HG.F) is widely seen as being one of the markets most sensitive to swings in the global economy. In recent years, due to its high demand for resources, business conditions in China have become a significant driver of Copper demand.Copper was crushed in 2022 during China’s last round of COVID lockdowns but toward the end of last year, Copper rebounded on anticipation of a reopening recovery. This rally sputtered out in February and for much of this year, Copper has been under steady distribution with China’s ongoing economic struggles dragging on the demand expectations side of the market.

Last month, Copper successfully retested its May low near $3.54/lb and in recent days it has started to rebound, completing a bullish Double Top breakout. A close above the September high near $3.87 would confirm the start of a new upswing with next potential resistance near the $4.00 round number then $4.32 based on a horizontal count, which is just above the February high near $4.27. Initial support appears near $3.64 based on a 3-box reversal.

The China-sensitive Hong Kong market captures changes in sentiment among equity investors toward the Middle Kingdom over time. The iShares MSCI Hong Kong Index Fund (EWH) peaked back in June of 2021 and has been in a downtrend of lower highs since then.

As with Copper, EWH staged a reopening anticipation rally in late 2022 and the start of this year which turned out to be premature. Since February, EWH has been trending downward, but this appears to be changing. Earlier this month, EWH bottomed out in a bear trap where it broke down by one row then reversed upward. More recently, the ETF has completed a bullish Triple Top breakout, signaling the start of a new upswing.

A close above the September high near $18.57 would confirm the start of a new recovery trend. A downtrend line appears near $19.15, followed by a resistance zone around the $20.00 round number between $19.70 and $20.30 where multiple column highs and lows plus horizontal counts cluster, and then near $21.35 based on previous column highs. Initial support appears near $17.15 based on a 3-box reversal, followed by low set earlier this month near $16.65.

Improving sentiment toward China may also have a positive impact on commodity prices, equity markets of resource exporting countries like Canada, Australia, Chile, Brazil, OPEC nations and other emerging markets who export products to China.