Chinese economic data over the weekend for retail sales, industrial production and urban investment is an interesting counterpoint to the continuing risk rally across global markets. That means trade on Monday could be lively as markets kick off for the week.
But what’s increasingly clear is that the very same traders who were frustrated and bearish just a month ago now appear to be excited and bullish. Friday saw more solid rallies across global stock markets with the S&P 500 up 33 points, 1.64% to bust through the 2000 level decisively. That also took the market back into bull territory now the 200 day moving average has been bested once more. Stocks in Europe soared as traders recalibrated their expectations about what the ECB’s extra monetary stimulus measures, announced Thursday, actually mean for the region. The DAX was up 3.5% on Friday. In London the FTSE rose 1.71%.
That’s left SPI 200 futures up 0.8% on Friday night and helped propel the Aussie dollar to its highest close since July 2 2015 at 0.7563. Nymex crude oil was up another 1.74% Friday and a test of its own 200 day moving average in the mid $42 region looms large on traders’ minds.
Risk rally or China slowdown? Or maybe the Fed’s big interest rate decision mid-week will hold the key to trade over the next five days. Locally with two Reserve Bank speakers, the RBA board minutes, and the release of the unbelievable Australian jobs data, traders are set for a “bevy” of important events this week, CommSec economist Savanth Sebastian wrote in his look at the week ahead.
The risk rally continues — as the S&P 500 turns bullish. The Australian stock market should not have any trouble besting the 5,150 — 5,200 resistance zone it has been unable to break through over the past week when trade opens Monday. That’s assuming that the Chinese data doesn’t spook traders too much. The reason the local market might finally be able to crack this bullish nut is because the S&P 500 has continued to rally and on Friday rose above the important 200 day moving average. That’s a level many traders use to delineate bull and bear markets, and the S&P 500 hasn’t been above it since the market rout began in the very last trading day of 2015.
That’s a bullish sign — here’s the chart:
China’s economy is slowing — but it’s still the fastest growing big economy on the planet. It is really easy to pooh-pooh China’s economy as the country slows amid a difficult economic transition. Saturday’s release of weaker than expected retail sales and industrial production data will again reinforce this negative perception. David Scutt reported over January and February (the data was released combined), industrial output grew by 5.4% from a year earlier, missing expectations for an increase of 5.6%, and below December’s 5.9%. Retail sales increased by 10.2% in January and February below December’s 11.1% pace expectations of a print of 10.8%. On the positive front, urban investment printed 10.2%, up from the 9.5% expected.
Markets potentially won’t like this economic weakness when they open Monday. But while the markets focus on a 0.2% miss here and there on expectations, they are not focused on what is still a very high rate of growth in a weak economic growth world. Put that growth in context with any other big economy’s growth rate and you can see why the world’s biggest hedge fund warned last week that China is simply navigating the road every developed economy has travelled at some point in their past. It’s the most perfect and succinct summary of what’s going on in China:
We believe that China is going through the same sort of debt and economic adjustment processes that all countries have gone through at one time or another. These adjustments are healthy and China will come out of them stronger, though it will be weaker while it is going through them. We believe that to characterise China either as not having significant challenges or as facing a terrible situation would be inaccurate. Yet, because many in the media prefer to use more dramatic characterizations, they distort and take our comments out of context.
Just some context around China’s slowdown. It’s real but it’s a road well-travelled.
Australian Calender — (courtesy NAB Economics, our emphasis)
Tuesday’s release of the RBA March Board Minutes will see the market interested in discussion around the rise of the Australian dollar and whether the slight change in wording to the monetary policy easing bias reflected any more likelihood of a near-term easing. That’s even more so the case after the Aussie dollar rallied to a high of 0.7583 Friday night before closing at 0.7563.
Thursday’s February labour force report and a speech from RBA Assistant Governor Guy Debelle are the other highlights in an otherwise quiet schedule.
Australian Labour Force — January It’s back to watching the most important monthly indicator, the February labour force report due Thursday. Notwithstanding the many misgivings that surround the month-to-month movements in this report, the trend in employment growth has been undeniably positive. Against some expected moderation in the underlying rate of net job creation, impacts from incoming and outgoing sample rotation groups inevitably feature in the published estimates and could affect the unemployment rate this month, likely downward.
As for the details of the labour force report, the past two reports have revealed quite subdued readings, with employment easing both in December and January after super-sized increases in the previous two months. This month there is the likelihood of some rise in employment, and a subsequent fall in the unemployment rate. NAB’s model forecast for employment is for a rise of 18k model, broadly in line with the NAB survey, which is consistent with employment growing currently at a monthly rate of 15-17k, a little above the +15k market consensus forecast.
International Calender (data via NAB Market Economics and CommSec)
NZ: Wednesday’s Current Account and Thursday’s GDP to get most of the attention. Also out are PSI services index Monday while RBNZ Governor Wheeler speaks Tuesday, but to a private forum. ANZ job ads and consumer confidence releases Friday.
China: Property prices for February due Friday. Key speeches by PBoC Governor tomorrow (Saturday) and by Premier Keqiang Thursday as the National People’s Conference draws to a close.
US: Retail Sales Tuesday and FOMC meeting/CPI on Wednesday feature. Also due are PPI, Empire State Manufacturing, the NAHB housing market index, Business Inventories and portfolio TIC capital flows all Tuesday. Housing Starts and Industrial Production are out Wednesday. Thursday sees Current Account, Philadelphia Fed survey, jobless claims and J0LTS Job Openings, followed Friday by the UoM consumer sentiment survey. There are also three Fed speakers on Friday.
Fed meeting on St Patricks Day — no hike, but. This Fed meeting is not live in the sense that anyone thinks they are going to increase rates. But CommSec’s Sebastian said it is still important because “new forecasts will be released and the Fed chair, Janet Yellen, will hold a news conference. She will have the opportunity to address the broad array of views amongst Fed members about the timing of future rate hikes”. A Yellen presser and a new dot plot. Plenty of room for markets to be surprised by a hawkish Fed.
Japan: Machine orders Monday, BOJ Tuesday the highlights.
Euro: Industrial production Monday, employment Tuesday, trade, February CPI Friday.
UK: Jobless claims/labour force Wednesday and BOE meeting Thursday.
Canada: Teranet/National Bank house prices Monday, existing home sales Tuesday, manufacturing sales Wednesday, retail sales and CPI Friday.
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