Selling has continued into the Asia session with both the ASX and the Nikkei sitting near-technical-bear-market declines of 20% from their recent highs. Nerves are still heavily focussed on China as we approach a major economic data dump from China, including Q4 GDP numbers. There have also been huge volumes going through oil contracts at the moment as well, with volumes in WTI and Brent 221% and 456% above their 100-day moving average. However, the calmer waters seen in Mainland equities seems to have stemmed some of the selloff in other regional markets from the initial horror open seen in Australia and Japan.
According to the NBS 70-city index, Chinese property prices saw further gains in December. 39 cities saw monthly gains in their house prices, the same amount seen in September prior to a pullback seen in October and November. On our unweighted aggregate index of the 70 cities, year-on-year growth moved into positive territory (+0.4%) for the first time since August 2014. It seems the government’s easing measures over the past few months and re-emphasised commitment to lowering housing inventory, as stated at the Central Economic Work Conference, look to be boosting prices. However, new property starts are still yet to see a boost, with property starts still at -14.7% in year-to-date YoY terms in November.
It has been a tense day in Chinese equities as the Shanghai Composite keeps flirting with a renewed selloff, but then manages to be pushed back up to the 2900 line. Of course, last week we saw a similar phenomenon with the 3000 level and eventual capitulation. With current market sentiment and the Shanghai Composite’s heavy weighting towards the debt-laden old industrial Chinese economy, a trip down to its November 2014 support of 2500 seems highly likely barring significant state intervention.
The Australian economy is still not down for the count yet: so says the auto sales data and TD-MI monthly inflation estimate. Announcements that Woolworths Ltd (AX:WOW) would ditch its loss-making home improvement chain Masters and that Wesfamers would buy out UK’s Homebase seemed to have rallied consumer stocks. On a pretty negative day on the ASX, JB Hi-Fi Ltd (AX:JBH), Myer Holdings Ltd (AX:MYR), and Metcash Ltd (AX:MTS) also joined Woolworths and Wesfarmers in positive territory, perhaps indicating some positivity in the consumer space.
The TD-MI inflation gauge gained strongly in December, rising to 2% YoY and 0.2% MoM. This bodes well for a bounce in Aussie CPI in Q4 from its 1.5% level in Q3. Currently, the three-month average of the TD-MI gauge for Q4 is pointing towards a 1.86% gain in the ABS quarterly data, and a number between 1.7-1.8% seems the best guess.
Aussie auto sales in December weakened 0.5% from the previous month. Having said this, it is quite a volatile index month-to-month, and the longer-term 12-month on 12-month growth grew to 3.5%. The chart, however, does sound a word of warning: whenever YoY growth was lower than the annual growth rate, which has often been a reliable indicator of forthcoming weakness in auto sales.
ASX: The ASX is teetering above the 4797 level where it would enter technical bear market territory, having seen a 20% decline from its high of 5996.9 in March 2015. Although at this point, technical definitions seem fairly redundant. The market has had a terrible performance over the past six months, irrespective of a 60 point difference in the index.
The energy sector was seeing the worst of the pain as the removal of sanction on Iranian oil exports and China’s equity selloff on Friday pummelled the oil price. Energy stocks lost -3.4% with heavyweights Santos and Origin seeing some of the worst of the selling.