China’s better-than-expected trade data – especially the imports numbers, which showed the strongest growth in 14 months – have created quite a bit of stir, it seems. Local stocks got a boost yesterday, the Australian dollar is about 1 cent higher than where it was yesterday morning (up 30 pips to 0.9106 from 1630 AEST), copper surged 2.8 per cent and on both sides of the Atlantic stocks found a bid for the first time in three sessions. Not bad.
Such is the pessimism on China that anything showing that economy not in a major slump is good news. Which means today could be a wild day – we get Chinese inflation data at 1130 AEST followed by industrial production, investment and retail sales data at 1530 AEST.
A good US jobless claims report also helped sentiment, although claims actually rose a bit – only 5000 though to 333,000 in the week to July 3. Still a very good number and one that points to ongoing strong gains in the labour market. Remember that no matter what you read, 162,000 jobs created in one month (latest payrolls result) is very good jobs growth.
So at the bell the S&P500 was 0.4 per cent higher (1697), the Dow put on 27 points (15,498) and the Nasdaq was up 0.4 per cent (3669). There really wasn’t much more to it than that. As you can guess, stocks leveraged to the China growth story did well – basic materials and even energy stocks outperformed, despite a 0.6 per cent fall in crude ($103.8). The idea is that if China is importing stuff again, maybe the economy isn’t so bad. In contrast, healthcare, telecoms and financials didn’t do as well.
As for other price action, stocks in Europe all rose – the Dax up 0.7 per cent, the CaC 0.6 per cent higher while the FTSE100 was up 0.3 per cent. The US 10-year bond yield was little changed at 2.59 per cent, while gold rose almost $25 to $1310. Finally, the euro is 40 pips or so higher to 1.3384 and the yen is at 96.62.
Bits and pieces otherwise. In Europe, German exports rose 0.6 per cent in June after a 2 per cent fall. Imports were down 0.8 per cent after a 1.4 per cent gain. Data also showed the number of births in Britain hit the highest rate in over 40 years, which will do much to support economic growth.
For the day ahead, the only domestic news flow comes from the Reserve Bank with its statement on monetary policy. Now, like the Bank of England’s inflation report, which I don’t think too many people even waste their time reading anymore, this report is much less useful given the bank’s exchange rate target. I’m not saying that to be smart – that’s my genuine read of things. Our economic backdrop doesn’t, and never has, require rate cuts – at the very least not to this magnitude. Things are deteriorating now, that is very true, but that’s only recently, a full year or more after the central bank started cutting rates and only because of low confidence, which the RBA’s rate cuts have done nothing to improve. In fact they’ve made things worse. It’s not the end of the mining boom crunching things, people – and that’s a fact.
Anyway, my guess is that a modest lift in the bank’s inflation forecasts will be offset by lower growth forecasts at the margin. Nothing too exciting. For me, both their inflation and growth forecasts are too low. I suspect the market will be much more focused on the Chinese economic data. Other than that there isn’t much of note – US wholesale figures, and inventories.
Have a great weekend…
Adam Carr is a leading market economist.
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