Investors wait for China data

Investors wait for China data

By Ric Spooner (Chief Market Analyst, CMC Markets)

The Australian markets are expected to remain cautious this morning as investors wait on economic data releases in China.

The release of statistics this afternoon covering China’s industrial production and retail sales for April has the potential to move world equity and commodity markets. Indications of moderating growth in China have been a key factor for markets in recent months.

Last week’s better than expected export figures surprised market watchers and appeared at odds with other softer indicators like the manufacturing PMI index. Investors are expecting today’s Industrial Production figures, to confirm the more moderate growth rates implied by the PMI. The greatest impact may come from a surprise to the upside that would be supportive for the resource sector.

There will also be interest in release of NAB’s Business Conditions Index this morning. Australian business conditions have been persistently weak in recent months despite indications of some improvement in consumer spending and relatively strong jobs growth statistics. As with the Chinese statistics, investors will be looking at today’s release for signs that this discrepancy is being resolved.

Recent weakness in the Australian Dollar is likely to support the outlook for exporters and businesses competing with imports. The most significant share market reactions to currency moves tend to come when investors perceive there has been a change in medium term currency forecasts not just routine short term fluctuations. Last week’s break below key technical support levels around 1.015 is likely to be seen in this light. However a clear break below long term trend line support around .986 may have a more profound impact.

The uptrend in the Australia 200 index remains intact. It would take a break below near term support at around 5117 to suggest short term weakness. A move below the support zone formed by the 50 day moving average and the early April peak might be needed to indicate potential for a larger downward correction. This support zone is currently around 5023/5043.

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