Morning traders. Thanks Trees and after-market regulars.
Market wrap:
The share market's recent bleak run looks likely to continue today after soft Chinese economic data released over the weekend compounded a weak close on Wall Street on Friday.
The September SPI 200 futures contract fell 19 points or almost 0.4% to 5519 on Saturday morning before China announced a slowdown in industrial output growth and disappointing retail sales and fixed asset investment. All three data-points fell well short of economists' estimates, heightening concerns that the economy of Australia's biggest trading partner is stuttering. (More below.) The news helped push the Australian dollar to a fresh six-month low this morning, lately buying 90.1 US cents.
US stocks turned lower on Friday as traders braced for the possibility that the Federal Reserve may flag interest rate rises early next year at this week's policy meeting. The S&P 500 dropped 11 points or 0.57% to extend its decline over its first losing week in six to 1.1%. The Dow lost 61 points or 0.36% on Friday and the Nasdaq 24 points or 0.52%.
“There is trepidation among investors, ahead of next week’s Fed meeting and whether the Fed will change the language over the timing of the interest-rate increases,” Kristina Hooper, US investment strategist at Allianz Global Investors in the US, told MarketWatch. “Scotland’s vote on independence next week is also weighing on sentiment. But in the long term, those issues do not have anything to do with fundamentals, which remain solid."
Strong US retail sales and consumer sentiment added to evidence that the US economy may now have enough momentum to withstand rate rises. Retail sales increased by a seasonally-adjusted 0.6% last month, the strongest growth since April, and readings for July and June were revised upwards. A preliminary reading showed this month's consumer sentiment index at its highest level in 14 months and well ahead of expectations.
“The data we saw is a suggestion that the economy is performing well and when the economy performs well, you run the risk of inflation,” Peter Jankovskis, co-chief investment officer of OakBrook Investments in the US, told Bloomberg. “That’s something that the Fed is tasked with keeping a lid on.”
Nine out of ten S&P industry sectors lost ground last week, with energy and utilities hit hardest. BHP and Rio Tinto ended losing weeks modestly lower once more in US trade on Friday. BHP eased 0.03% and Rio Tinto 0.38% after spot iron ore for import to China broke its losing run with an up-tick of 10 cents to US$82 a dry tonne.
China's monthly economic data dump on Saturday raised the possibility that the government will have to ease lending restrictions to stimulate the economy. Growth in industrial production eased sharply to 6.6% from 9% (forecast: 8.8%). Growth in retail sales slid to 11.9% from 12.2% (forecast: 12.1%). Growth in fixed-asset investment dropped to 16.5% from 17% (forecast: 16.9%). The reports helped push the Australian dollar was this morning buying US cents.
“If they don’t extend more credit it’s difficult to see any re-acceleration in growth for the rest of the year," Liu Li-Gang, chief Greater China economist at ANZ Banking Group in Hong Kong, told Bloomberg.
Gold extended its loss for the week to 2.8% as strength in US economic data dampened demand for alternative stores of wealth to the greenback. Gold futures for December delivery declined $7.50 or 0.6% on Friday to settle at US$1,231.50 an ounce and close the week at US$1,229.
Oil declined after the European Union extended sanctions against Russia. West Texas Intermediate crude oil for October delivery fell 56 cents or 0.6% to settle at US$92.27 a barrel and ended the session at US$92.15.
Copper pared its worst weekly loss in almost two months. In London, copper edged up 0.04% on Friday but fell 2% over the week. Lead gained 0.19% for the session, tin 0.95% and zinc 0.49%. Aluminium fell 0.54%, nickel 0.14%, US copper for December delivery rose about a cent or 0.3% to US$3.10 a pound.
European markets ended a subdued session little changed despite stronger industrial production data than economists anticipated. Output across the euro-zone increased by 1% during July, twice the predicted growth. The Stoxx Europe 600 index closed flat as Germany's DAX fell 0.42%, France's CAC gained 0.02% and Britain's FTSE added 0.11%. TRADING THEMES THIS WEEK
CHINA WEAKENING: Much of the pressure on the Australian share market over the last few weeks comes from the perception that our largest trading partner is losing momentum. Saturday's monthly update did nothing to change that perception. However, there are two ways for the market to take the figures: the glass-half-empty view is that demand for Australian resources is falling therefore the Australian share market is a sell; the glass-half-full view is that the Chinese government will have to stimulate the economy to hit growth targets, therefore recent weakness in the Australian share market may present a buying opportunity. Any hint of stimulus could fuel a swift turnaround on the ASX and in the price of key Australian exports such as iron ore and copper.
FED-WATCHING: For stock-watchers, this week is all about the US Federal Reserve and the language it uses when it releases its latest policy statement at 4am EST on Thursday morning. The market reckons recent data show the US economy has enough momentum to warrant a first hike above record low rate levels some time next year. The question is when? Wall Street has been taking profits in anticipation that the Fed is about to amend its dovish outlook, so it's possible that any market adjustment will be complete by the middle of the week and the event itself is an anti-climax.
ECONOMIC NEWS: A light week for scheduled domestic news includes: new vehicle sales (!1.30am today); the minutes from the last RBA meeting (tomorrow); leading index (Wed); and the RBA Bulletin (Thu). A substantial menu of economic data from the US this week includes: industrial production, Empire State Manufacturing Index (tonight); producer price index/core PPI (tomorrow night); Fed Funds rate, policy statement and press conference, consumer price index/core CPI (Wed); and building permits, weekly benefit claims, Philly Fed Manufacturing Index, speech by Fed chair Janet Yellen (Thu).
