Markets vulnerable to upcoming data releases

09.56 AEST, Tuesday 16 April 2013

Markets vulnerable to upcoming data releases
By Ric Spooner (Chief Market Analyst, CMC Markets)

While a small miss in China’s GDP and industrial production data was the primary catalyst for the share market selloff, the underlying reasons for the decline are a supply driven decline in some commodity markets, a leverage inspired crash in gold prices and, in the case of the Australian market, full valuations for many stocks.

The adjustment to these factors may have further to go. The outlook for moderating growth implied by the US retail sales figures and China’s GDP does not represent a major change to consensus views on commodity demand. However, it comes at a time when some markets such as oil and copper are facing increased supply capacity. Resource stocks are adjusting for the fact that a decline in prices is occurring earlier than some had forecast and may yet have further to go.

The fall in gold prices is reminiscent of some of the market capitulations seen during the GFC when leveraged investors were required to sell assets to maintain balance sheets and preserve liquidity. The extent of leverage is now much lower and this may see more orderly conditions return to the gold market sooner rather than later.

Markets will also be sensitive to any further information on the situation in Boston and whether or not it has any geopolitical implications.

Early declines in the Australian market may tempered by the fact that it had already dropped significantly yesterday in response to the news on China’s growth. However, small misses in a number of upcoming commodity related data releases have the capacity to drive further downward momentum in markets over the next 24 hours. These include Rio’s quarterly production report and tonight’s US housing starts and industrial production releases.

http://www.cmcmarkets.com/

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