Markets: China check-up

Having accepted the enhanced possibility of QE's end, the market has looked elsewhere for guidance and has been encouraged by signs coming from China.

The Australian market seems to have put the taper tantrums of the Fed behind it and is looking forward.

China’s latest trade numbers were released earlier this afternoon and show exports and imports rebounded in July, even beating initial estimates. Exports and imports are up 5.1 per and 10.9 per cent, respectively, from a year earlier. Following a two-quarter slowdown in trade data, the strong numbers have buoyed the local market in the afternoon session, guiding the index to a 40-plus gain for the day.

These figures in conjunction with the pickup of the PMI in July, coming in at 50.3 up from 50.1 in June, may be a step towards calming fears China’s growth is faltering. The improved numbers could very well have China on track to reaching the 7.5 per cent growth target for this year.

If concerns for China’s long-term growth were greater, iron ore prices would be falling through the floor with local miners easing up on production. However, this is not the case. Earlier today I wrote about Rio Tinto reporting this afternoon and their plans to expand iron ore production.

We can be quick to criticise China’s growth, but we need to remember they are pursuing a structural change within their economy. It has been reported that China has ordered more than 1400 companies in 19 industries to cut excess capacity production this year.

Everyone wants to know what the real growth numbers are like coming from China, noting data can sometimes be questionable. Hopefully BHP and RIO will be able to give a clearer picture of what things are really like on the ground in China based on their future orders and what their longer term expectations are.

The market has become fixated with the growth target and the prospect of anything less instantly has us feeling like China’s growth is stalling. In relative terms it is helpful to remember growth of anything around 7 per cent is a good 3 or 4 per cent greater than what we are seeing anywhere else in the developed world at present. 

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