Higher overnight commodity prices and support for the resources sector has got the market off to a solid start despite caution over today’s data releases.
The reserve ratio cut for China’s banks is unlikely to impact investor thinking. China’s reserve ratios are relatively high. Despite concerns over credit, Chinese authorities appear to be part way through an ongoing plan to progressively reduce bank reserve ratios to support economic growth. The latest move is another step in this process.
Early trading is likely to be cautious as traders wait on the large number of economic data releases due today. A nice jump in the AIG manufacturing PMI got things off to a good start. Australia’s positive PMI reinforces a pattern where manufacturing in countries with relatively weak currencies like Europe and Australia are doing well at the expense of those with stronger currencies like the US and China.
Building approvals and net export data will provide important insight into the Australian economy later this morning. Trend building approvals have been showing signs of plateauing. If continued this trend may help alleviate concerns over a looming apartment glut but will create a headwind for the economy via its impact on construction and manufacturing.