The Monday Report

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By Greg Peel

News on China's August trade balance had Wall Street feeling positive on Friday night, albeit the Dow stumbled its way to the close on very light volume. The Dow closed up 47 points or 0.5%, while the S&P also added 0.5% to 1109.

China reported 32.5% year-on-year export growth in August compared to economist expectations of only 25%. Positive data out of China is nevertheless now always a two-edged sword. While strong imports suggest Beijing has not slowed the Chinese economy as much as feared, they also mean it still might.

There was another two-edged sword report on Friday in the form of US wholesale inventories and sales for July. Inventories jumped 1.3% following only a 0.3% jump in June and way ahead of expectations of a 0.4% gain. It was the biggest monthly gain in two years. Inventory growth suggests wholesalers are more confident than might have been expected.

However, wholesale sales rose only 0.6%, continuing a recent trend of sales growth numbers falling below inventory growth numbers. Such an imbalance is a possible harbinger of deflation if companies end up stuck with unsaleable goods and are forced to discount.

Positive Chinese data is always good for Australia, so the Aussie was up another third of a cent to US$0.9264 by end-Friday despite a small rise in the US dollar index to 82.87. Gold also rose slightly, by US$2.70 to US$1246.70/oz.

While base metals were slightly lower in London, oil jumped US$2.20 to US$76.45/bbl on a combination of China, an upgrade to global demand expectations from the International Energy Agency, and the temporary closure of a US-Canada oil pipeline.

The SPI Overnight added 12 points or 0.3%.

On the subject of Beijing, there is widespread speculation the Chinese authorities may move to step up tightening measures once again today, with an increase in the bank deposit rate tipped. Speculation was fuelled when Beijing announced it would bring forward the release of its monthly economic data from Monday to Saturday.

The Chinese consumer price index rose by 3.5% (yoy) in August, up from 3.3% in July. However, the numbers were impacted by recent floods causing a squeeze on food prices. The producer price index rose 4.3%, down from 4.8% in July.

Fixed asset investment for the year to date rose 24.8% compared to 24.9% in the same period last year, albeit economists had expected only a 24.5% gain. Industrial production rose 13.9% (yoy), up from 13.4% in July and well ahead of the 12.9% prediction. Retail sales rose 18.4%, up from 17.9% in July.

Put these altogether and we do not see a picture of a slowing economy in August, noting also that the previously released Chinese manufacturing PMI also showed an increase and export numbers were strong. It is thus with little surprise Beijing is anticipated to announce a new monetary policy response today. Tomorrow also sees the release of the Conference Board leading economic index for China for July.

It's sentiment week in Australia this week, beginning tomorrow with the NAB business conditions and confidence survey. Wednesday sees the Westpac consumer confidence survey and Thursday consumer inflation expectations. We also have second quarter dwelling starts and August vehicle sales on Wednesday, and the RBA will release its quarterly bulletin on Thursday.

Across the globe it's August industrial production week. China has pre-released, the eurozone reports tonight, Japan and Tuesday and the US on Wednesday. The US will also see business inventories and retail sales on Tuesday, the PPI and Treasury capital flows on Thursday, and the CPI and Michigan Uni fortnightly consumer confidence measure on Friday.

This week also sees the release of the Empire State (NY) and Philadelphia Fed district activity indices.

Europe and the UK will also be watching inflation, unemployment and trade data, while the closely watched ZEW sentiment index for the EU will be released on Tuesday.

On the local stock front, there are quite a few stocks going ex-dividend today and a handful more throughout the week, which will appear to drag on the index. AGM season is quietly building, while Myer ((MYR)) will report its first full-year result as a separate listed entity on Thursday.

For further global economic release dates and local company events please refer to the FNArena Calendar.

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