China data holds the key to world markets

Spot iron ore’s recovery to above $US50 and a stronger overnight oil price should see a reversal in resource stocks and a firm opening for the ASX 200 index this morning as traders wait on release of key Chinese economic data due at midday.

While hopes of stabilising commodity prices provide something for optimists to pin their hopes for the Australian economy on, news that the weather bureau now sees a significant probability of an El Nino weather pattern by June is a negative. It creates a real prospect of a poor season for farmers and a potential downside for both the economy and the budget deficit.

Two key questions for market this week are how the US economy bounces out of the cold winter and how the Chinese economy is trending after the New Year. Data releases have not so far been encouraging on either front. The March bounce in US retail sales was less than expected, suggesting that US shoppers remain frugal, delivering only moderate trend growth in this important part of the economy over recent months.

The release of China’s economic data is likely to hold the key to world markets for the next trading session. Concerns over Monday’s weak trade data have created potential for volatility around today’s data. Weak data will build on negative sentiment over China while figures that are in line with expectations or a bit better might be a significant relief to markets.

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