China angst fails to rattle US market sentiment

Australian shares are expected to open higher this morning after US investors shrugged off concerns about a sharp decline in Chinese exports.

By InvestSMART · 13 Aug 2012

By InvestSMART ·
13 Aug 2012

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Australian shares are expected to open higher this morning after US investors shrugged off concerns about a sharp decline in Chinese exports.

AUSTRALIAN shares are expected to open higher this morning after US investors shrugged off concerns about a sharp decline in Chinese exports.

It comes as the US government slashes its estimates of corn and soybean production, raising fears of a new global food crisis, as the country's worst drought in more than 50 years decimates crops.

Asian and European stocks lost ground on Friday, with Japan (down 0.9 per cent) and Germany (down 0.3 per cent) slipping backwards, after data showed Chinese trade growth slowed severely in July, with exports rising just 1 per cent from a year ago.

The news shook global markets on Friday, raising concerns of a slowdown in global growth.

But US stocks ignored the data after better-than-expected earnings for some of the country's biggest companies, with the S&P500 Index instead capping a fifth-weekly advance, up 0.2 per cent at 1405.87.

It came despite a report from the US Department of Agriculture on Friday predicting corn output for 2012-13 would likely be 10.8 billion bushels - the lowest production since 2006 - while yields were likely to be the worst for 17 years.

The local futures market was yesterday forecasting the benchmark S&P/ASX200 to open 17 points higher, or 0.4 per cent, at 4272.

The full-year profit reporting season shifts up a gear this week with Goodman Fielder, Wesfarmers, Commonwealth Bank, Echo Entertainment, AMP, and QBE Insurance among the heavy hitters to open their books to investors.

Fund managers said Commonwealth Bank, which reports on Thursday, will be a big one to watch.

"There's going to be a lot of focus on Commonwealth Bank because of its share price appreciation running into this result," ATI Asset Management's David Liu said.

"There are some concerns that it's going to do a Telstra, in the sense that it's been bought up for its attractive yield but unless it's going to deliver an exceptional result the stock may underperform.''

Among those to report their full-year earnings today are Newcrest Mining, Downer EDI and JB Hi-Fi.

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Frequently Asked Questions about this Article…

Why were Australian shares expected to open higher despite a sharp decline in Chinese exports?

Investors expected the S&P/ASX200 to open higher because US markets largely shrugged off the weak Chinese export data after some big US companies posted better-than-expected earnings. Local futures were forecasting the ASX200 to open about 17 points higher (roughly 0.4%) at 4,272.

How did the slowdown in Chinese trade affect global markets?

The sharp slowdown in Chinese trade growth rattled global markets — Asian and European stocks lost ground (Japan down about 0.9% and Germany down about 0.3%) — because the data raised concerns of a broader global growth slowdown.

What did the US Department of Agriculture report say about corn and soybean production?

The USDA slashed its estimates for corn and soybean production, forecasting 2012–13 corn output around 10.8 billion bushels — the lowest since 2006 — and warned yields were likely the worst in 17 years. The report added to fears of a possible global food squeeze.

Why did US stocks ignore the weak Chinese export numbers?

US stocks largely ignored the Chinese export weakness because stronger-than-expected earnings from some large US companies offset the negative trade news. The S&P 500 capped a fifth consecutive weekly rise, up about 0.2% at 1,405.87 on the day referenced.

Which Australian companies were highlighted as reporting full-year results this week?

The article lists several big names reporting full-year results, including Goodman Fielder, Wesfarmers, Commonwealth Bank, Echo Entertainment, AMP, QBE Insurance, and also notes Newcrest Mining, Downer EDI and JB Hi‑Fi reporting on the day mentioned.

Why is Commonwealth Bank seen as a key report to watch this reporting season?

Fund managers flagged Commonwealth Bank as a major focus because the stock had experienced strong price appreciation heading into its result. There were concerns it could disappoint if it fails to match high expectations — similar to past situations where yield-focused buying led to later underperformance.

What should everyday investors take away from the mix of trade data, weather-driven crop cuts and company earnings?

The article suggests markets can react differently to macro shocks depending on corporate earnings momentum. While weak trade and reduced crop forecasts raise growth and food-price concerns, stronger-than-expected corporate results can temper market falls. Investors should watch economic indicators, commodity reports (like USDA updates) and major company earnings for the combined picture.

How might the US drought and lower crop forecasts influence investors and markets?

According to the article, the severe US drought and downgraded crop forecasts heightened fears of a new global food crisis, which can boost commodity price volatility and affect related sectors. The immediate market impact depended on how other forces — especially company earnings — offset those concerns.