Oil and base metals collapse as markets focus on Chinese activity data

Quick Recap

Ah China. The release of GDP yesterday was just enough of a beat, 6.9% yoy growth against 6.8% expected, to soothe traders fears that teh economy is tanking. Of course the data is somewhat problematic in so far as the year on year rate might be the weakest in year but the implied qoq rate means China hasn’t slowed at all from last year.

Believable? Probably not, even though I’m in the camp that says we have to trade the information we have.

Certainly many of Twitter including noted China watcher patrick Chovanec are outright skeptical on the numbers. But Ray Attrill, the NAB’s co-head of global currency strategy said, “While local markets yesterday appeared to take China’s 6.9% Q3 GDP print at face value and largely ignored the September activity readings, this was not the case offshore and where the further slowdown in industrial output and fixed asset investment – both of which came in weaker than expected – look to have resonated much more.”

So the activity data and the lack of belief in the reality the 6.9% suggests is certainly the approach that traders on commodity markets took as they thumped copper and base metals lower overnight. Crude fell even more although OPEC’s entreaty to Iran to slow its oil production in teh year ahead was a bit of a red rag to a bull. Sorry bear. That leaves Crude having broken, tested and rejected its uptrend from the lows (see chart of the day below.

On forex markets the Aussie has slipped a little after the rally to 73 cents yesterday as the market got a little excited by the Chinese data. That just told us the market was short and that strength didn’t last long and teh Aussie is back at 0.7250 this morning. My system still suggests the Aussie is going to slip toward 0.72 cents. Elsewhere there hasn’t been a lot of change on forex markets although the Canadian dollar is under a bit of pressure as we await the results, and possible change of government, at Monday’s election.

In the end stocks were mixed, traders confused and the market now looking for another catalyst to drive trade. In Australia today SPI futures last night were flat and the market awaits the release of the governments response to the Murray Finanical Services Inquiry this morning.

If you are on the east coast it might be a nice day to enjoy this summery weather.

The overnight scoreboard (8.37am AEDT):

• Dow Jones Industrials +0.08% to 17,230
• Nasdaq Composite +0.38% to 4,905
• S&P 500 +0.03% to 2,033
• London (FTSE 100) -0.4% to 6,352
• Frankfurt (DAX) +0.59% to 10,164
• Tokyo (Nikkei) -0.88% to 18,131
• Shanghai (composite) -0.11% to 3,387
• Hong Kong (Hang Seng) +0.04% to 23,075
• ASX Futures overnight (SPI December) flat – 5237
• AUDUSD: 0.7249
• EURUSD: 1.1328
• USDJPY: 119.46
• GBPUSD: 1.5458
• USDCAD: 1.3014
• Nymex Crude (front contract): $45.89
• Copper (US front contract): $2.368
• Gold: $1,170
• Dalian Iron Ore (January): 371.5 (denominated in CNY)
• US 10 year bond rate: 2.02%
• Australian 10 year bond rate: 2.60%

On the day

On the data front today, beside the FSI response in Australia, we have the minutes to this month’s RBA board meeting at 11.30am AEDT. German PPI tonight will be interesting in the context of this week’s ECB meeting and in the States tonight we get housing starts and building permits along with more Fed speakers.

CHART OF THE DAY: USOIL

OPEC telling Iran to back off is never a good look if you want the price to rise. That is unless Iran agrees. That’s the point of the entreaty.

Butu last night this, and the focus of the marekts on the other Chinese data released yesterday, the activity indicators, which were weaker than the GDP suggested seems to have spooked commodity traders. So oil finished down 2.9%.

Recently oil failed to break back above the 200 day moving average. It’s slipped below this trendline and even though momentum is waning a test of the recent low at $45.76 is now the key level to watch.