In China, stocks continued to rally despite weaker economic growth there. The Shanghai Composite Index rose 2.8% to a three-year high after officials approved the launch of the Hong Kong-Shanghai trading link. Until now, overseas investors were largely limited to trading on the Hong Kong exchange. The new program will give overseas investors access to $2 trillion in Chinese equities, which could be supportive of stocks there.
A wary outlook for gold. While volatility in stocks and bonds is down, it is picking up for commodities. Gold was hit earlier in the week by news that Chinese demand contracted for a third consecutive quarter. The metal traded to a new low for the year, temporarily dipping below $1,150 per ounce, before rebounding on Friday. But several factors are still conspiring against gold: a strong dollar, the prospect for rising real interest rates (in other words, the interest rate after inflation), and declining inflation expectations. Indeed, the University of Michigan Consumer Sentiment Survey showed U.S. inflation expectations declining from 2.8% to 2.6% last month. As such, we would continue to be cautious on gold in this environment.
Sources: Bloomberg (except as noted)
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.