Corporate earnings, China fears enough to pen the Bulls?

11:05 AEST, Thursday 24 October 2013

Corporate earnings, China fears enough to pen the Bulls?

By Niall King (Sales Trader, CMC Markets)

After taking a peek at 5400 before retreating late in the session yesterday, the local sharemarket has held ground in early trade, notching a small gain and defying the overnight performance of its international peers. Having wobbled towards yesterday’s close, as a wave of fear over the China embraced local investors, it’s the major banks that have taken the baton so far while the Materials sector has slipped slightly.

With soft spots surfacing in corporate earnings, global equity investors look to be reflecting on their positions having enjoyed a stimulus induced bull run over the past week. Caterpillar was the most notable miss overnight while concerns of tighter monetary landscape in China appears to have quelled buy side activity for the moment.

However, easy money remains on the table. The pace of economic recovery in the US was already a frustration for policy makers so the recent debt ceiling debacle came as an unwelcome setback to growth progress. On top of the damage caused by the government shutdown, sluggish September employment data suggests any stimulus reduction seems further away by the day, supporting recent bullish positioning in equities.

Born predominantly out of the flight from its US counterpart, the meteoric resurgence of the Aussie dollar received an abrupt check amid fears of a tighter monetary outlook in China. Despite inflation data supporting the domestic interest rate status quo in the short term, the Aussie's sensitivity to all things China remains telling. Mooring just over US 96 cents in early trade, having been decimated by the rise in Chinese money market rates, a healthy HSBC Flash PMI read from our largest trading partner this lunchtime could be just the tonic to regain some of the lost ground. Beyond this, the perceived proximity of stimulus reduction in the US looks set to continue to pull the strings of the local unit.

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