Fear du Jour

Today’s investor offering is a serving of commodity lead industrial weakness, on a bed of China growth fears, spiced with a hint of higher US interest rate panic.

The rotation of reasons to panic continues today as copper slips below $2 a pound and oil hits fresh eleven year lows. Yesterday’s yuan appreciation, a stronger AUD and gains in the last two hours of US trading will likely count for naught in a market environment relentlessly focussed on potential risks.

Market thinking is rounding a divestment circle – China concerns lead to commodity weakness that arouses industrial worries that brings further China weakness. Despite a clear PBoC signal to markets in lifting the official exchange rate for the yuan mainland investors continued to sell, with the rest of the world following their on-the-ground assessment. However, even if there is another stable rate set today and Shanghai shares rally, Australian shares could still fall as the market caravan has moved on and it’s the commodity dogs barking today.

Against this backdrop the release of Japan trade data and credit card numbers in Australia are not expected to produce traceable moves. A possible source of succour for investors today is the bounce in the AUD. After plumbing lows, it’s approaching US 70 cents. A perception that AUD is heading higher could spark covering of the some of the aggressive international shorting of the Australian market implemented over the first six days of the year.