Chinese stocks rise sharply, commodity rebound intact for now

Chinese stocks rise sharply on a technical bounce, hopes for a stimulus package: Chinese shares turned sharply higher from recent weakness, getting a boost from commentary by JPMorgan, which said that the Chinese government is considering a stimulus package valued at CNY200B-CNY400B (about $29B-$58B). Chinese resource stocks benefited from yesterday's rebound in commodity prices, while financials traded higher after a leading bank posted strong first half earnings. At 0:03 EDT the Shanghai composite index gained 5.87%, and Hong Kong's Hang Seng index gained 1.55%.

Forex: EUR/USD failed to move above 1.4800 in Asia, but some analysts suggest that the USD's recent bounce could end when traders finish liquidating long positions in commodities and non-dollar currencies accumulated over recent months. Option dealers noted large numbers of USD/JPY vanilla option expiries in the 109.65-110.00 region, with some suggesting that further volatility remains limited in the short-term. GBP/USD was capped by 1.8680, with solid bids seen around 1.8620/30. For NZD/USD, chartists say support is seen at $0.7080, while resistance is expected at $0.7190. USD/KRW had a volatile session, with Korean FX authorities selling USD to support the ailing KRW.

Japan's all industry activity index hit by weaker spending in the services sector and sharp declines in industrial output: (JP JUNE ALL INDUSTRY ACTIVITY INDEX MOM: -0.9% V -0.9% expected, 0.4% prior) Japan's tertiary index declined in June due to lower spending in the wholesale and transportation sectors, while industrial output dropped as automakers and semiconductor companies cut production to cope with rising inventories and eroding demand.

Australia's leading index registers the slowest rate of growth since July 2001: (AU JUNE WESTPAC LEADING INDEX MOM: 0.1% V 0.0% prior) The leading index grew at an annualized rate of 2.0% in June, slowing from an annualized rate of 2.4% in May. "This is the slowest growth rate of the Index since July 2001 and the fall in the growth rate since 2000," said Bill Evans, Westpac's chief economist. The leading index's slower growth is attributable mainly to falling share prices, tighter liquidity, weak dwelling approvals and soft data for U.S. industrial production, Westpac said.

Equities: At 23:58 EDT Japan's Nikkei is 0.33%, the S&P/ASX200 is 1.21%, South Korea's KOSPI is 0.20%, Hong Kong's Hang Seng index is 1.69%, and the Shanghai composite index is 5.89%. The S&P500 futures contract gained 0.28% since the U.S. close, last trading at 1,271.90. The benchmark Nikkei index reversed early losses, with commodity-related issues leading most of the upside. Despite a mixed bag of earnings report ahead of the open, the S&P/ASX200 moved above 4,900, with bargain hunters picking up some resource stocks. South Korean and Hongf Kong stocks tracked the rebound in Shanghai.

Commodities: Nymex crude oil gained 0.32% between 18:00 EDT and 23:56 EDT, last trading at $114.90/bbl. Looking ahead, the weekly U.S. gasoline inventories report is expected to show a decline in stockpiles for the 4th consecutive week, while crude inventories are expected to rise by 1.05M barrels. Spot gold gained 0.64%, last trading at $822/oz.