Weak data from China could build on early nervousness

Weaker than expected data from China could build on early nervousness

By Ric Spooner, Chief Market Analyst CMC Markets
April 15, 2013

Falling commodity markets will see negative sentiment on our market this morning as investors wait on Chinese and Japanese economic data later in the day.

Weaker than expected retail sales in the US during March set a weak tone for the commodity markets. Retail sales suggest that growth in the US economy is struggling to gain momentum as the effects of tighter fiscal policy begin to impact. The modest 0.5% growth in sales over the past 3 months implies relatively anaemic growth in the all-important domestic sector of the US economy.

The sharp fall seen in some commodity prices on the back of a moderating demand outlook may increase the responsiveness of our market to data releases from China and Japan later in the day. While Chinese data is often pretty close to expectations it may take only a modest undershoot of expectations to build on negative sentiment today. Markets will also be looking for early signs of improvement in Japan’s industrial production and machinery orders in response to the weaker Yen.

The sharp drop in gold will also weigh on resource sector sentiment today. The move below $1523 in gold represented a break below well established and much watched technical support. The clear move below this level will now have technical analysts expecting a deeper downward correction in gold over the medium term.

From a technical perspective the most likely scenario for S&P/ASX 200 index puts the recent rally as a correction of the decline from 5163 to 4883 rather than the start of a new move higher. While this corrective rally may take the index a bit higher, it is currently baulking at the resistance of the 50 day moving average. At this stage it would take a breach of support at 4884 to signal the end of the current rally and resumption of a larger corrective decline.

www.cmcmarkets.com.au

ENDS

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