By Michael McCarthy, Chief Market Strategist, CMC Markets Australia
Overnight action confirms that China trade data released yesterday is a game changer. Strong continuations of commodity and US share rallies, and a melt-up on continental bourses, have futures traders expecting further strength in Asia Pacific shares in trading today. Adding to the good news for Australian investors, US banks shares rallied hard after JP Morgan reported a better than expected quarter.
A key Q1 market narrative revolved around China. It was two pronged. The Chinese economy was slowing, and slowing much faster than official data showed. The 11.5% surge in exports in March directly contradicts both points, showing strong growth in data that is verifiable by trading partners. This shoots the China bears in the heart, and is likely to echo through global and Australian share trading for days and weeks to come.
Stronger China data has a direct impact on commodity prices via its influence on perceptions of global demand. The 6% lift in BHP’s share prices yesterday was outstripped in both London and New York trading, pointing to potential market leadership again today. However, energy stocks could lag. Oil prices softened after US inventory data showed a resumption of the stockpile build, and traders are now expressing doubts about this weekend’s OPEC meeting.
Regardless, the crumbling demand scenario is now off the table.
This has multiple positives for the AUD and Australian shares. The AUD held firm overnight against a strengthening USD. The pressure on material and energy companies is now lifted and bargain hunting could be on the cards. Selling of the Australian share market as a proxy for China should abate. And Australian banks are now less vulnerable to a postulated credit crunch. A risk on environment could be very pleasing to Australian investors, and open-minded traders.