The Monday Report

This story features JB HI-FI LIMITED, and other companies. For more info SHARE ANALYSIS: JBH

By Greg Peel

Chinese industrial production rose by 9.7% (year on year) in July having risen 8.9% in June, and against expectations of 8.9%. Retail sales rose 13.2% having risen 13.3% in June and against expectations of 13.5%. Year to date fixed asset investment rose 20.1% against expectations of 20.0%.

Retail sales slightly disappointed, but given the recent run of weak Chinese data, last week’s numbers, including solid trade data, suggest the Chinese slowdown may have reached its nadir. The good news is China’s CPI was steady at 2.7% in July, below the government’s 3.5% target. The PPI nevertheless fell for the seventeenth consecutive month, down 2.3% compared to 2.7% in June. The lesser fall suggests producer price deflation may now be decelerating.

All up it was a positive set of numbers for those very worried about the Chinese economy. The low inflation rate provides scope for a long awaited return to stimulus in the wake of the reform measures the new regime has been implementing all year. The data set should have been enough to encourage positive sessions on both Bridge Street and Wall Street on Friday, but it wasn’t to be.

Bridge Street did recover over the day after an initial Wall Street-led fall, but showed little excitement and still finished in the red. With the bulk of stocks set to report earnings over the next three weeks, no one is taking big bets just yet. The week on Wall Street finished on a soft note, with the Dow down 72 points or 0.5%, the S&P down 0.4% to 1691 and the Nasdaq off 0.3%. It marked the end of a six-week winning streak, the longest since one year ago.

If global stock markets are feeling a little tired and apprehensive as we close in on the traditionally difficult September-October period, the story is very different for commodities. It’s summer in the north, and markets are thin, but on Friday base metal prices all jumped another 1-2%. And so much for the risk premium abating for oil. Brent gained US$1.54 to US$108.22/bbl and West Texas surged US$2.63 to US$106.03/bbl, with the Chinese data the primary driver.

Spot iron ore is unchanged at US$133.10/t.

If volumes are low in commodities markets, they’re nearly non-existent on Wall Street at the moment. The US indices did not retreat last week on enthusiastic selling, they drifted off on a lack of buyer interest. Technical traders also pointed to the S&P’s failure to hold above 1700 to justify their own selling.

Bridge Street was likely a little hampered last week by a big bounce in the Aussie. On Monday last the Aussie was trading below 89. By Saturday morning it was trading right on 92, up another cent from Friday morning. The stock market may not have been inspired by the Chinese data but forex traders certainly were, and no doubt the sharp rise included a fair bit of short covering. The stock market wants the Aussie to go back down again.

For that to occur without another fall in commodity prices, the US dollar has to rally. It should rally, because in theory the Fed will soon begin to taper. But that trade has also gone a bit sour now as the endless will they-won’t they debate rages on. On Friday the US dollar index rose 0.1% to 81.12 but has fallen over 4% since early July.

The fall on Wall Street would suggest a possible weak opening on Bridge Street this morning, yet the SPI Overnight closed unchanged.

Last week was a week devoid of important US data, and lacked any corporate earnings reports of significance as the US season grinds to a close. This week may be different, however. Aside from a couple of big name late reporters in the form of Dow components Cisco and Wal-Mart, there is a raft of economic numbers due.

Tonight sees the Treasury budget and tomorrow business inventories and retail sales. On Wednesday it’s the PPI, and on Thursday the CPI, industrial production, housing market sentiment and both the Empire State and Philadelphia Fed manufacturing indices. Friday wraps up with housing starts, June quarter productivity and the fortnightly consumer sentiment measure.

It’s also a big week outside the US, with Japan reporting its June quarter GDP today, along with monthly inflation, and the eurozone reporting GDP on Wednesday. Europe will also see numbers for industrial production and trade over the week as well as the ZEW investor sentiment index.

The highlights for Australia this week economically will be the NAB business sentiment survey on Tuesday and the Westpac consumer confidence survey on Thursday. On Tuesday the Rudd caretaker government will deliver a pre-election fiscal statement.

The real highlight this week will nevertheless be the Australian reporting season, which really begins to hot up. We’re now at the point at which there are too many announcements to list, and readers are thus directed to the FNArena calendar. Suffice to say this week’s reports include those from JB Hi-Fi ((JBH)) and Newcrest ((NCM)) today, and Commonwealth Bank ((CBA)), CSL ((CSL)), Leighton Holdings, ((LEI)), OZ Minerals ((OZL)), Wesfarmers ((WES)), AMP ((AMP)), Westfield ((WDC)) and Santos ((STO)) across the course of the week, just to name a few.

Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm on Switzer.

NOTE FROM THE EDITOR

Economic data have started to surprise on the upside, including recent PMI surveys and Chinese indicators. This has prompted suggestions from the more optimistic forecasters that global growth is looking in much better shape for the second half of the calendar year. If correct then the recent switch into resources stocks will have further to run.

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

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms