In the absence of any significant surprises from China, today seems likely to be a day of consolidation for the ASX 200. Other markets are pausing with some signs of profit taking. The commodity rally is catching its breath ahead of this weekend’s oil meeting in Doha; short $US positions are being covered after substantial declines and US stock markets had a quiet session.
However, the state of China’s economy remains a key variable for investor thinking. The commodity rally has been major focus of the improved outlook for shares. Signs that the lagged impact of China’s stimulus initiatives are starting to translate into improved demand have been crucial to the commodity rally. This all sets up for volatility following release of the China data today. A good set of numbers could see the commodity momentum continue. This would fuel a positive session for Australian stocks. Poor data could see a sell off given that it comes after a strong three day rally in the ASX 200.
China’s headline GDP figure for the first quarter and Industrial Production for March will be the key focus. Yesterday’s better than expected export data creates the potential for improved industrial production.
The oil price is parked at chart resistance leading into the producer meeting in Doha. With US production now trending lower, and doubts over how quickly Iran can increase production, an effective freeze by other major producers would reduce the risk that other forecast US production cuts will simply step into replace the US. However, oil’s significant rally leaving leading into this meeting skews risk to the downside with potential for a buy the rumour; sell the fact reaction to the Doha meeting.
Weaker than expected US CPI data tends to support Janet Yellen’s view that core inflation will remain below 2% this year, allowing the Fed to be cautious about lifting rates. However, after strong downward moves following Dr. Yellen’s recent speech, profit takers are continuing to support the $US against the Euro and Yen. The Aussie dollar has outperformed based on yesterday’s better than expected Chinese trade data. This will heighten its sensitivity to the release of China’s economic data today.