The Monday Report

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By Greg Peel

All Hail China

Chinese trade data, released on Friday, showed exports rose 7.9% year on year in January, having fallen -7.7% in December, ahead of 3.3% forecasts. Imports rose 16.7%, having risen 3.1% in December, ahead of 10.0% forecasts.

On that note, the Australian market jumped 1%.

The ASX200 had opened strongly to begin with, following Wall Street’s excitement over Trump’s apparently “phenomenal” tax reform, details of which are set to emerge in the next two-three weeks. The index had begun to level out late morning, setting itself up for a Friday afternoon drift, but then along came the Chinese data.

If Thursday’s trade was all about rotating out of the large cap banks and miners that have driven the latest rally, and into beaten-down growth stocks, Friday was simply a “buy everything” session. All sectors finished in the green – cyclical, defensive, yield plays or growth plays – and no one sector stood out.

The evenly spread 56 point gain for the ASX200 took the index to a close above 5700, signalling to chartists a move to 5800 and ultimately 6000, is on the cards.

Such strength will nevertheless rely on a positive result season.

And there’s one other point.

We go through this every year. Every year China’s data surge ahead of the Lunar New Year holiday, as businesses rush to fill orders before shutting down and households rush to buy what they need for new year celebrations, then drop on the full week of lost activity the following month, before picking up again as businesses get back into the swing. The data of developed world economies are “seasonally adjusted” to smooth such anomalies. Chinese data are not.

Then there’s another consideration. Trump has threatened to slap tariffs on Chinese exports to the US. If so, Beijing may retaliate with a tariff on US exports to China. No one’s sure how this is going to play out, so it might be a good idea to over-export/over-import now before the walls go up.

Or maybe the Chinese economy has suddenly leapt from its sick bed singing “Oh what a beautiful morning”, and no one saw it coming.

Whatever the case, we’ll no doubt learn more when the February numbers are released. Meanwhile, the macro story will roll on, mostly out of Washington, but the micro story will be heavily in focus for the next two weeks as the local earnings season shifts into top gear.

The deluge is coming.

Just buy it

The word “phenomenal” was still ringing in Wall Street’s ears as the market opened on Friday night.  No one knows what it means, but hey, it can only be good one assumes. At least there’s some movement at the station on the much anticipated tax front.

The Chinese data were also taken as a positive by Wall Street.

Wall Street was also heartened by Donald Trump being all chummy at the Whitehouse with his new best buddy Shinzo Abe. You’d think they were long lost friends. After a brief official reception the two took Chopper One down to Florida and stay at one of Trump’s establishments, play some golf and shoot the breeze – all at Trump’s personal expense.

Not only is Japan a major US trading partner, it is the second biggest employer of US workers in US-based factories, pumping out Toyotas and Sony TVs and the like. Bit hard for Trump to erect walls to keep out Japan. Japan is also America’s most important ally when it comes to keeping a rein on China. To see the two leaders being best buddies thus provides a sigh of relief for Wall Street.

Otherwise, the major US indices all hit new all-time highs again on Friday night largely because it seems a bit dangerous at the moment not to buy. The Dow closed up 96 points or 0.5% while the S&P gained 0.4% to 2316 and the Nasdaq rose 0.3%.

There was not a great deal of conviction in the buying, traders reported. Volumes were modest.

The tail end of the US earnings season rolls on this week, and there are quite a lot of economic data releases to absorb. Janet Yellen will provide a mandatory biannual testimony to each house of Congress on Tuesday and Wednesday nights. Yet no doubt, it will be what comes out of the White House that will determine market direction.

Commodities

What do you get when China posts much better than expected trade data?

Aluminium rose 1.5% in London, lead 3%, nickel and zinc 3.5% and copper 4.5%. For copper, there’s also the issue of the Chilean miners’ strike.

Iron rose US$3.80 to US$87.00/t.

West Texas crude rose US73c to US$53.78/bbl.

The Aussie is up 0.7% at US$0.7678.

The US dollar index ticked up 0.2% to 100.78 and gold is relatively steady at US$1233.00/oz.

The SPI Overnight closed up 10 points or 0.3% on Saturday morning.

The Week Ahead

It’s a busy week in the local results season this week, and a busier week next week.

Today’s reporting highlights include Ansell ((ANN)), Amcor ((AMC)), Aurizon ((AZJ)), JB Hi-Fi ((JBH)) and Newcrest ((NCM)).

Japan’s December quarter GDP result is due today and the eurozone’s tomorrow.

Chinese inflation numbers are out tomorrow.

The US will see industrial production, retail sales, housing sentiment and the Empire State index on Wednesday, housing starts and the Philadelphia Fed index on Thursday, and leading indicators on Friday. Janet Yellen will testify before Congressional committees on Tuesday and Wednesday.

In Australia we’ll see the NAB business confidence survey tomorrow and the Westpac consumer confidence survey on Wednesday, followed by jobs numbers on Thursday.

Rudi will appear on Sky Business via Skype-link on Tuesday and Friday this week. Plus he'll join Mark Todd (NAB) on Friday late (7-8pm) for Your Money, Your Call Fixed Income.
 

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