US housing data means positive start for Australian market

09.56 AEST, Thursday 18 October 2012

US housing data means positive start for Australian market
By Miguel Audencial (Sales Trader, CMC Markets)

The Australian equities market is projected to have a positive start in today’s session due to higher than expected US housing data and Moody’s decision to keep Spain’s credit rating. The Materials sector is expected to have a positive open as well today ahead of stronger iron ore prices. BHP and RIO ADRs finished strongly in the US session overnight gaining 3.06% and 4.63% respectively.

Positive macroeconomic data in the US from higher than expected Housing Starts was neutralised by disappointing microeconomic news from tech giants IBM and Intel which reported lower than anticipated quarterly results. The DOW was virtually flat closing up only 4.7 points higher. Although there was a stale mate between the macro and micro news last night, I expect the encouraging housing data to have a longer lasting effect in the market, resulting in a trickle down affect to the other sectors in the economy.

Moody’s decision not to drop the rating of Spain caused optimism in the financial markets in Europe. UK unemployment data was also positive with the Unemployment rate dropping to 7.9% from 8.1%. The market was expecting a downgrade and when this didn’t happen, investors were willing to place their assets into higher yielding instruments. European equities finished stronger and the Spanish and Italian debt instruments provided lower yields.

Despite crude oil inventories increasing more than anticipated, the price barely changed in last night’s session as buying was supported by encouraging housing data. There have been a lot of concerns during the past few weeks about the future demand of oil with the slowing rate of Chinese growth and ongoing concerns in Europe. The promising housing data alleviated some of these concerns in last night’s session. I can see a lot of upside potential in the price of crude oil in the short to medium term not only because of the increased demand caused by a recovering US housing sector, but also the supply issues from the ongoing conflict between Syria and Turkey.

The quarterly Chinese GDP data is due later today and investors will keep a close eye on this figure which will provide an indication about how concerned the market should be in regards to China’s slowing growth rate.

ENDS

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