Market mood improves

Buyers are returning to the stock market ahead of today’s China data. Traders are weighing the odds of missing a recovery led by solid US profit reports against the risks of disappointing data from China this afternoon.

Buyers are returning to the stock market ahead of today’s China data. Traders are weighing the odds of missing a recovery led by solid US profit reports and a recovery in bond prices against the risks of disappointing data from China this afternoon.

Markets have taken the view that steady US core inflation will allow the Fed to maintain a snail like pace of monetary tightening beyond the expected rate hike in December. While higher gasoline prices saw a solid jump in the headline CPI, the core CPI is being kept steady by weak goods inflation which is being impacted by a solid $US and soft world trade. The question for the next few months will be whether this starts to be over turned by ongoing improvement in oil and commodity prices.

Higher than expected credit growth in China has helped allay short term concerns about China’s weaker than expected export performance. Credit growth continues at a rate that should support the domestic economy in the short term.

Buyer mood is also being supported by this morning’s announcement of the merger between Tabcorp and Tatts which serves as a reminder of potential for M&A activity in the current environment.