A mildly positive start to trade is likely this morning after Wall Street closed flat on Friday and Cyclone Narelle spared mining facilities in Western Australia.
The March SPI 200 futures contract advanced eight points or 0.2% to 4689 on Saturday morning as traders anticipated a rebound following Friday's downturn on the ASX as a cyclone temporarily closed iron ore export terminals and offshore oil production in northern WA. The cyclone has since been downgraded and communities in the Pilbara given the all-clear as Narelle moved down the coast.
US stocks closed little changed on Friday as investors digested the first week of fourth-quarter earnings reports and a rise in Chinese inflation pressured Asian markets. The S&P 500 shook off early weakness to close less than 0.1% in the red. The Dow inched up 17 points or 0.12% and the Nasdaq added 0.14%.
"The good news about China is that it is in a trajectory of improvement," the chief investment strategist at the private-banking unit of KeyCorp in the US told Bloomberg. "The bad news is that it may also boost inflation. In the US, people will be focussed on earnings. It's not great yet, but it certainly has the potential for improvement as we get further into the year."
Australian shares lost ground on Friday after China reported an unexpected acceleration in inflation last quarter, raising fears that Chinese authorities will abandon their recent loosening of economic policy. The news helped strip 1.78% off the Shanghai Composite on Friday.
Banks were the biggest drag on the S&P 500 after Wells Fargo's earnings report signalled a tightening in interest margins. The report helped pull Bank of America and Citigroup down more than 1% ahead of their profit reports this week.
Economists cut their GDP expectations for last quarter after the government announced a blow-out in the trade deficit. The gap grew 15.8% to US$48.7 billion in November as 3.8% growth in imports far outweighed a 1% increase in exports. Analysts at JP Morgan, Barclays and Morgan Stanley lowered their Q4 GDP predictions by as much as a half following the data.
European markets edged higher. Germany's DAX put on 0.1%, France's CAC 0.08% and Britain's FTSE 0.34%.
Risk appetite in commodity markets was curbed by the negative implications of rising inflation in China, the world's second largest economy. Spot iron ore in Shanghai dropped US$3.30 to US$154.90 per metric tonne on Friday, its largest intraday fall in percentage terms since September. Copper for March delivery in the US slid five cents or 1.3% to US$3.66 a pound. In London, copper lost 0.4%, lead 0.2% and zinc 0.1%. Aluminium advanced 0.2%, tin 0.4% and nickel 0.3%.
Gold pared its gain for the week to 0.7%. On Friday, gold for February delivery fell $15.70 or 0.9% to US$1,662.30 an ounce.
Oil secured a gain of 0.5% for the week despite a flat close on Friday. West Texas crude for February delivery eased five cents or less than 0.1% to US$93.77 a barrel.
TRADING THEMES THIS WEEK
US EARNINGS SEASON: With the US's budget showdown temporarily behind us and Europe's debt crisis off the front page, attention this week will be on the flood of corporate profit reports as the US fourth-quarter earnings season gets into full swing. Among the big guns reporting this week are GE, Intel, Goldman Sachs, JP Morgan, AmEx, Bank of America, eBay, Citigroup and Morgan Stanley. Earnings predictions for the quarter have been sharply lowered leading into reporting season, so there may be room for positive surprises.
CHINESE GDP: The pace of growth in China has been steadily moderating since the first half of 2010 to a three-and-a-half-year low last year. Friday's GDP report is expected to break the downtrend, confirming the recent turnaround in the Chinese economy. Economists are tipping an acceleration in growth from 7.4% to around 7.8%. Monthly industrial production data, retail sales and fixed asset investments are also due on Friday.
ECONOMIC NEWS: This week's Australian highlights include: inflation gauge at 10.30 am EST, job ads and home loans at 11.30am (all today); consumer sentiment, car sales (Wed); and employment change, unemployment rate and inflation expectations (Thu). A solid week of US data includes: retail sales, producer price index/core PPI, Empire state index, inventories (tomorrow); consumer price index/core CPI, industrial production, home builders' index (Wed); weekly jobless claims, housing starts, Philly Fed and consumer sentiment (Thu).
