China’s strong property market may limit early market gains

10.05 AEST, Monday 20 May 2013

News on China’s strong property market may limit early market gains

By Ric Spooner (Chief Market Analyst, CMC Markets)

While the steady climb in the US stock market creates a positive lead for the local market this morning, investor enthusiasm may be tempered by news of strong increases in China’s property market and further declines in precious metals prices in early Asian trade.

The weekend’s news of ongoing, solid increases in new house prices in China increases the probability of further tightening action by authorities. The government’s task is to tread an appropriate middle line between maintaining reasonable levels of overall economic growth and employment on the one hand and avoiding a property bubble on the other. Actions to limit property investment, even if specifically targeted at property can have multiplier effects on confidence and the rest of the economy and this may be a consideration for resource company investors today.

Gold miners may be a focus again today with significant early selling in gold and silver this morning.

Further weakness in the Aussie Dollar against the US on Friday will be an offsetting positive for resources. With much of the recent strength in the $US attributable to forecasts that the Fed will soon begin to reduce its asset purchase programme the release of last month’s Fed minutes later in the week loom as a key event for currency markets.

Technically, the S&P/ASX 200 remains in a clear uptrend. It would take a break below the zone of support represented by the 50 day moving average around 5060 and the mid April high at 5023 to indicate any real weakness. On the upside, Fibonacci projections and developing trend channel resistance suggest some resistance for the index around 5300.

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