A quiet start to trading on the local stockmarket after the share price futures contract ended with a small gain overnight. But all eyes will be on the Reserve Bank, even though it won’t cut rates.
The local stockmarket surged through some big moves yesterday, falling to be down 1.5% at one stage, then rebounding, only to fade at the end to close down 0.7%.
More mixed messages from the US economy overnight had some analysts tipping a delay to the Fed’s move, but that’s probably their financial positions talking – the US economy remains solid and a bit stronger than it seems.
The Aussie dollar dipped under 76 US cents overnight to 75.98, and was trading just above that level this morning. Iron ore was steady at just over $US61 a tonne and oil and gold had small losses, but nothing significant.
The markets continue to focus on China: after last week’s nervous end, both Shanghai and Shenzhen rose strongly yesterday.
The Shanghai market jumped 4.8% yesterday, while the Shenzhen market was up a similar amount as investors shook off those fears of late last week which drove the 6.5% plunge on Thursday.
The rebound came despite unconvincing reports of the health of Chinese manufacturing. Instead of worrying investors, the two poor reports encouraged them into believing the government will reveal more stimulus measures in coming weeks, and chased shares higher.
The Financial Times reported that analysts at Schroders Investment wrote yesterday in a note: “the market has moved into a phase where ‘bad news is good news’, as weaker data are expected to trigger policy easing and broader macro stimulus from the Chinese authorities to stem the slowdown in the economy.”
And analysts at Credit Suisse said the market is “clearly detached from underlying fundamentals." They said the astonishing rally over the past year has been driven "almost entirely" by domestic investors, guided by policy easing at the People’s Bank of China and a "re-allocation into domestic equities away from bank savings, wealth management products and residential real estate."
"We feel that A-shares are already at vulnerable levels in light of its frothy valuation, increasing IPO issuance, deteriorating corporate earnings and capital outflows," said Schroders. “We would not be chasing A-shares,” the FT reported overnight.
