Strong US lead wins out

Investors have decided to go with the US and pushed the local market higher at the open. US stocks provided a positive lead for investor sentiment by breaking strongly into new highs for the year.  The solid opening for our market has, at least initially, overcome any misgivings about small misses on China data released over the weekend. 

The China data for February data has not done a lot to change overall market views on the economy. Solid growth in the domestic sector continues to be partially offset by weak export demand. However, the industrial production and retail sales data did represent small misses on consensus expectations and this adds to the impression of an outlook, which is at best steady as she goes.

The strong Aussie Dollar is partly offsetting the benefit of the recent improvement in commodity prices for Australia.  The stubborn strength in the Aussie has investors concerned about a stronger for longer scenario developing that might be considerably more than just a short term corrective rally for the Aussie Dollar.

Currency traders have a watching brief on central bank meetings this week. While none are expected to take action, traders are alert to the possibility that the Bank of Japan might surprise with another round of stimulus. This seems fairly unlikely given how close the vote on the last stimulus package was. However, the fact that the Yen has stayed relatively strong can be read two ways in for the BOJ. Yen strength is on the one hand a warning that further BOJ stimulus will be of little benefit but it’s also an indication that is needed to meet inflation targets.