Investors keep watch on China data

Investors keep watch on China data

By Ric Spooner (Chief Market Analyst, CMC Markets)

While early indications are that the S&P/ASX 200 index will trade fairly close to Friday’s closing levels in early trade, the tone in Asian markets may determine where it closes.

The extent to which China’s economic growth is moderating has recently been a key consideration for international investor attitude towards Australian stocks. This was a driving force for recent sharp declines in both the share market and the Aussie Dollar.

The weekend’s statement by Xi Jinping that the country won’t sacrifice the environment to ensure short term growth reinforces a view that China’s government is happy with a balanced approach with a reduced bias towards the stimulus and infrastructure spending that characterised recent years. With China’s markets finishing last week on a weak note, today’s release of figures on industrial company profits for the year to date has the potential to influence sentiment on both the Chinese and Asian stock exchanges generally.

From a technical perspective, last week’s sell off looks significant. The clear breach of the early March peak in the S&P/ASX 200 index at 5163 followed by a conclusive move below the 50 day moving average at around 5056, suggest that this downward correction has further to go. It’s now possible that we have embarked on a correction of the rally that began at 3985 last June. In that case a pull back to major support levels in around 4700 to 4750 looks possible. Support in this region includes the 200 day moving average, a long term trend line and the 38.2% retracement of the rally since June last year. In the meantime, the April low at 4883 represents a minor support level.

The Aussie Dollar is approaching similar support levels. Last June’s low at .9582 represents minor support level but the more significant potential support is at around 94c. This level was both the high in November 2009 and the low in October 2011.
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