Aussie Dollar push to new lows and weak iron ore prices reveal mounting market concern over China's economy

Markets received more good news on the US economy last night with news that the official estimate of 3rd quarter GDP growth has been increased to 3.9%. However, local investor focus is likely to be closer to home with mounting concern over China’s economy and release of quarterly construction work figures for our economy.

The US economy continues to show signs of the virtuous circle of growth other major economies aspire to. Ongoing growth in employment continues to drive moderate growth in consumer spending and GDP growth.

Despite this good news from the US, recent market behaviour suggests mounting concern about China. Typically, for the early stages of Central Bank rate cutting cycles, the positive announcement effect of last week’s rate cut has been short lived and quickly swamped by concerns about the moderating growth that led to the rate cuts in the first place.

Market concerns about China are evident in falling iron ore prices and a weaker Australian Dollar. While resource stocks will benefit from a weaker Dollar, the tone in this sector is likely to remain relatively nervous today.  The absence of any pre-announcements on possible production cuts from OPEC members prior to this week’s meeting is also likely to set a subdued tone for energy stocks.

Today’s construction report will provide some insight into the negative impact of reduced mining investment on the local economy with a weaker than expected number likely to add to downward momentum in the Australian Dollar.

With Medibank, closing on its lows yesterday, new shareholders will be focussed on whether the momentum of stag profit taking continues in the first couple of hours trading this morning.

For further comment from Ric Spooner please call 02 8221 2137.