US existing home sales seen bouncing back in September

Good morning,

• Chinese GDP exceeds expectations but leaves the door open to further stimulus;

• Oil rallies on increased Chinese industrial production but supply glut limits upside;

• US existing home sales seen bouncing back in September;

• Corporate earnings to remain important for sentiment as 24 S&P 500 companies report.

With another positive start to the US session expected this morning, it looks as though the panic that was so evident in the markets last week has finally passed and been replaced with bargain hunting.

Helping drive indices higher this morning is the better than expected growth figures from China, which despite experiencing the slowest rate of growth in six years in the third quarter, exceeded market expectations. As always, there’s a couple of ways to look at this data but clearly investors are focusing more on the positives once again. The fact that the economy grew at 7.3% compared to a year earlier, ahead of expectations of 7.2%, obviously means the economy isn’t slowing as much as people thought, but it also leaves the door open to further targeted stimulus from the People’s Bank of China if the country is to achieve its 7.5% growth target. This makes the result doubly positive which is helping risk sentiment today.

On top of this, industrial production in the country increased by 8% in September, bouncing back from the unexpected decline in August. News of increased industrial activity in China has helped lift oil prices as it would imply a rise in demand in one of the world’s largest oil consumers. The jump in prices has only been moderate though as supply is still far exceeding demand, with the latter likely to continue to ease in the coming months as we continue to see an economic slowdown in the global economy.

Retail sales and urban investment both fell short of expectations in China for September, but these misses were only small and therefore taking everything into account, investors were more encouraged by the data than disappointed. The fact that it was the perfect balance of being strong enough to ease fears of a major slowdown in China but weak enough to leave the door open to more targeted stimulus is perfect for the markets.

As is going to be the case during the US session, the morning in Europe has been very quiet from an economic data standpoint. This will pick up considerably over the next few days but for now, all we have is US existing home sales data for September. Existing home sales have been quite good since the second quarter, not including last month’s surprise 1.8% decline. We’re expecting them to bounce back in September with a 1% rise compared to August to 5.1 million.

Aside from this, focus will be on corporate earnings with 24 companies in the S&P 500 reporting. The companies include the likes of Verizon, Yahoo and Coca Cola so it’s worth keeping an eye on how these do. I think this is going to be a big sentiment driver in the markets in the coming weeks. With global growth fears growing, we need some good news and earnings season has the potential to be the thing that keeps buyers in the market and stops the sell-off taking hold again.

The S&P is expected to open 12 points higher, the Dow 89 points higher and the Nasdaq 36 points higher.