China data may provide a little balance to weak leads from falling US stocks and commodities

The ASX 200 looks set for another weak opening this morning. Profit taking in US stocks and falling commodity prices have been leading world markets lower. However, the weekend release of China’s economic data may have a stabilising influence for markets.

The kind of gradual increase in interest rates likely to be implied by the Fed this week is unlikely to be a major negative for world stock markets. However, by the end of last month US S&P 500 was approaching its April peak in terms forward price earnings multiples. With interest rate increases now imminent, it is not surprising to see a bit of risk being taken off the table in US stocks. Friday’s 2% decline in the S&P 500 and the break below its mid-November low suggests the possibility of ongoing volatility and downward momentum as the market heads into the Fed’s rate announcement on Thursday morning.

Sliding oil and iron ore prices are obviously a concern for the mining and energy sector with no sign yet of either production cuts or a positive demand response to weaker prices. Last week’s news that China’s steel production fell 2% in the 11 months to November underscores the problem for the over supplied iron ore market.

Weekend news that China’s industrial production, retail sales and fixed asset investment all beat market expectations providing real reason to expect that China’s economy may be stabilising at current growth rates. If this is confirmed over coming months it will be a positive for the world growth outlook and may give investors reason to be cautious about driving stock prices too low at the moment.