Scoreboard: Chinese fortune

Good Chinese data turned on the global risk bid, while continuing debate over Syria hit commodities hard.

It was another good session for global equities overnight – and some very good reasons for cheer. Firstly, we saw a batch of data yesterday showing China’s economy accelerating. In particular, industrial production rose 10.4 per cent in the year to August, up from 9.7 per cent last month. Consumer spending then surged over 13 per cent and fixed asset investment remains very strong at around 20 per cent year-on-year. This is a far cry from the hard landing scenario the market was toying with only weeks ago.

All is good it seems and stocks on both sides of the Atlantic saw a decent bid as a result. At the bell, the S&P500 was up 0.7 per cent (1683), the Dow rose 115 points and the Nasdaq was up 0.5 per cent (3724) but as good as those gains were, US markets underperformed Europe with the major indices there up between 0.8 per cent (FTSE) and 2.1 per cent (Dax).

The other major issue of course is Syria and the market seems somewhat more relaxed on this front given the growing likelihood of a diplomatic solution. So while the US State Department was initially playing down the idea of Syria handing over its chemical weapons, the proposal has actually gained significant traction in the international community. Russia is keen and Syria has said they would comply and sign a treaty banning their use – provided the US withdraw the threat of force. The French in turn are suggesting the Security Council consider a resolution that Syria must hand over its weapons, or face the threat of military action.

Still some way to go obviously, but at the moment an attack looks less likely and Congress has even delayed a vote on the issue – one was due for later this week and early next week. In any case, there is significant opposition to the use of force in the US Senate, with the Republican minority leader Mitch McConnell stating that he would not vote in favour of military action given that “vital national security interests” were not threatened.

Now while progress on Syria seems to have helped the bid for stocks, commodities were hit hard – a little too hard in my opinion considering the positive Chinese data and also considering the weaker US dollar – although admittedly the fall in the dollar was modest overnight. Still, crude was off 2.1 per cent ($107), gold fell $23, silver dropped over 3 per cent and even copper was weaker – 0.4 per cent.

As for price action elsewhere, we saw the US 10-year bond shoot higher, about 6 bps to 2.96 per cent. The Australian dollar is about 60 pips higher at 0.9314, the euro is little changed at 1.3266, while the yen is at 100.4 from 99.6.

That’s largely it. For the Aussie market today, consumer confidence is the key figure at 1030 AEST. Hopefully we’ll see a surge here and it was very positive to see business confidence spike higher yesterday. That jump now brings business confidence to its highest level in two years. A good result if it’s held. Otherwise, consumer confidence itself has been bouncing around average levels according to Westpac’s measure, but on a broader spread, confidence is much lower having deteriorated sharply from about mid last year.

We’ll see what happens. But it’s important to note that on paper, there is every reason to see confidence much, much higher on both the consumer and business front.  There are headwinds, sure – a weaker Australian dollar that makes the country poorer et cetera as well as policy makers on the board who constantly grab on to whatever the latest doom-monger is saying. But overall, more reason for optimism.

Have a good one…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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