Yesterday’s disappointing Japan GDP and China trade balance set off the global growth alarm bells once again. There was also a bit of fed speak with Williams and Lockhart both flagging rates lift off in the middle of next year. Lockhart is a good measure of sentiment as he generally has a moderate opinion. As a result, it seems Federal Reserve members are gradually gravitating towards that median and as long as data continues to track as it has been lately, then this median is also likely to firm up into a consensus. Perhaps a minor surprise was Lockhart added that he thinks the ‘considerable time’ reference will be kept. The Fed’s blackout period will commence tomorrow as we head towards next week’s policy meeting. Oil dropped over 3% and is now trading at October 2009 lows with global growth concerns, discounting and supply issues remaining rampant.
China in focus on stimulus talk
The greenback lost a bit of steam after Friday’s rally, particularly against the yen. USD/JPY retreated into ¥120.00 after having come close to ¥122.00 in the previous session. This will also see the Nikkei retreat further at the open today. An interesting development for risk in the near term will be what happens with China after yesterday’s alarming trade balance numbers. With both exports and imports declining, there are reports suggesting pressure is ramping up on the People’s Bank of China to cut the reserve required ratio. It’s clear China is suffering from both global economic pressure along with domestic weakness. Many analysts had been speculating that a rebound in China’s imports will come to fruition at the back end of the year and eventually lead to a recovery in commodities like iron ore. Anticipation of further easing is likely to continue driving equities in China higher. However, it doesn’t seem like it will be quite the same for the rest of the region with the ASX 200 and Japan pointing lower.
Materials and energy to weigh on ASX 200
Ahead of the open we are calling the ASX 200 down 0.5% at 5350. Yesterday’s gains were driven by the banks following the Murray inquiry. Perhaps we’ll see some of these gains pared back today with some mild profit taking in the banks. The materials space will remain a concern after China’s trade balance and global growth concerns continued to impact commodities. Iron ore dropped 2.7%, the most in 3 weeks and with activity in China looking like it will remain subdued in the back end of the year, the picture could get uglier. Arrium will be an interesting one to watch after Allan Gray Australia raised its stake in the company to 10.7% (from 9.44%). Investors are likely to start looking at consolidation opportunities in pure plays and mining services companies. The energy space is also likely to be on the back foot after the sharp drop in oil. Outside of materials, Qantas will be one to watch: can it continue its run? On the calendar today we have NAB business confidence and conditions. After last month’s surprise improvement, the pressure will be on in today’s reading.