IG Markets - Afternoon thoughts
Across Asia, regional markets are mixed despite heavy losses being witnessed in the US overnight. The Hang Seng and the Shanghai Composite are the weakest performers, both lower by more than 1%, while the Nikkei and the Kospi are marginally in positive territory with gains of 0.4% and 0.1% respectively.
In Australia, the local market is currently 0.6% weaker at 4294 having earlier fallen to a session low of 4274. Losses on the day are broad based, with the heaviest percentage losses being seen across the healthcare, energy and information technology sectors. The materials sector, which has been expected to be amongst the weakest today, has pared some of its earlier losses courtesy of an unexpected Chinese trade surplus of US$5.35 billion versus consensus forecasts of a US$3.15 billion deficit.
That said, the composition of the trade balance number could be seen as slightly worrying for Australia. While export growth was slightly more than expected (8.9% versus 7% consensus), allaying some fears of a complete collapse in European demand, the import growth of 5.3% (versus 9% consensus) suggests a slowing demand for Australian commodities. While not ideal, these trade flows will no doubt have meaningful implications on Australia’s fiscal position. Export revenues resulting from slower Chinese demand and domestic supply constraints could leave a larger-than-expected hole in the national budget, but on a positive note increases the likelihood that the RBA may soon look to cut its cash rate.
As suggested this morning, the ‘will they, won’t they’ debate over the Fed’s QE intentions looks like continuing for a while longer and will be a key factor in determining trading patterns this week across equities, currencies and commodities.