Today seems to be a day of consolidation ahead of a data dump from China tomorrow. The disappointing China trade balance reading set the scene for stimulus, as the anticipation continues to fuel equities at the moment. While the Hang Seng has tapered off a bit today, the Shanghai Composite has continued to extend its gains ahead of a raft of releases. It’s safe to say investors in China are positioning for some disappointing data and the weak trade balance suggests GDP could undershoot this week and risks slipping below the expected 7%.
On top of the GDP reading tomorrow we also have retail sales, industrial production and fixed assets all due out at midday. March property prices data will also be released at the end of the week and given the extended weakness we’ve been seeing in that sector, bright spots will be hard to come by. At some point this week we also receive the latest money supply, new yuan loans, foreign reserves, aggregate financing and foreign direct investment.
While bad data is certainly proving to be a positive for China at the moment, there will be a breaking point surely if the current trend continues. Already we have a situation where China stimulus speculation is no longer necessarily driving risk assets higher as it used to in the past. Apart from Chinese equities, commodities and related currencies are continuing to point to further weakness.
ASX 200 testing uptrend support
There is a lot in the world to be cautious about at the moment with US earnings on the way, the greenback remaining resilient, Greece remaining an issue and China’s growth rate dropping at an alarming rate. Perhaps that’s why we are seeing equities in the developed markets remain range bound, with no real impetus to drive equities higher until we see some clarity on some key issues.
The ASX 200 stalled near 6000 yesterday and while we are likely to see this level broken at some point in the near term, for now it seems investors are waiting for confirmation of a rate cut. The drag from the mining sector has ensured gains remain capped; even with some proactive cost cutting and capital management moves, the investment case remains limited. The impact this is having on the fiscal side of things has many wondering how deep the RBA will have to dig to make up for the drag. Jobs numbers will be the highlight of the week, but how they’ll be interpreted by the market remains uncertain. The price action on the ASX 200 also remains very interesting as an uptrend that’s been in place since January is just holding.
Weaker open for Europe
Ahead of the European open we are calling the major bourses weaker, with the markets that were firmer yesterday likely to lead the losses. There has been a lot of talk around Greece working on an exit plan, but I doubt this will be anything new; many would have expected the country to work on a contingency for a while now. Data in Europe is limited, but in the UK we have CPI/PPI and the BRC retail sales monitor for March.
On the US calendar today we have retail sales, PPI, the NFIB small business index reading and business inventories data. Whichever way the data swings, it is likely to have an impact on the greenback. Earnings also ramp up with JP Morgan, Wells Fargo, Intel and Johnson & Johnson reporting.