Asian markets cap mixed week

It’s been a roll coaster week on Asian markets. Chinese and Japanese economic data has surprised on the downside, the spot iron ore price has tumbled and so too have many Australian mining producers.  Australia’s trade deficit also surprised on the downside – $556m compared to a deficit expectation of $300m – but this was countered by better than expected employment numbers which showed a decrease in the official unemployment rate to 5.1%. Markets are up slightly in Asian trading hours, but there is no immediate sense of rush to buy into this brief rally.

City Index continues to monitor the situation in China very closely, with an eye on the copper price which at the time of writing is hovering slightly above US$3.50/lb. The price of copper is comfortably above the all-important US$3.30/lb technical support level, which was tested in the past few weeks and held very strongly. The next leg up could see US$3.60-65/lb tested. The correlation with the share price of many copper producers though has been negative – not much trust in production numbers of key miners to cash in on the price improvement. But this will change with sentiment around China.

If Macau is anything to judge by, the mainland Chinese economy might be slowly restoring its growth trajectory. August gaming numbers have just been released by the Macau gaming Commission – they point to a 5.5% increase in monthly gross revenue, compared with 1.5% in July this year. We recently wrote analyst forecasts were pointing to 4% – 6% growth, so the number is towards the higher end of expectations. The slot machines are ticking and the high rollers keep coming.

This could signal an elevation in the official rate of inflation in China by the beginning of 2013 and hence could limit further aggressive PBOC monetary losing. We think the fiscal response to growth will be the most prominent in the coming months. And it’s not all smooth sailing for those doing business in China.