Australian Stock Market Leads - 03/06/2012

Global markets retreated overnight with China's announcement acknowledging a weakness in its economy and growth would be subdued in 2012 at 7.5%.

No less than Chinese Prime Minister Wen Jiaobao, who declared the 8% target set could no longer be achieved and must be decreased by 0.5%. Mr Wen revealed the economic outlook for the country at the start of the Chinese Communist Party Congress on Monday in Beijing.

This development is seen affecting Tuesday's trading in Australia because China and the rest of Asia comprise the country's biggest export market, accounting for about 90 to 92% of total mining and merchandise exports.

Mr Ric Spooner, chief market analyst at CMC Markets, says in a commentary that China's announcement came at a time of political uncertainty as Chinese leaders chose a new set of leaders.

"The announcement, although not unexpected comes at a time of leadership transition when there is more than the usual amount of uncertainty about the nature of future economic reform," Mr Spooner explains.

He adds that the medium term risk "for commodity markets is that the focus on rebalancing demand towards soft domestic consumption such as healthcare coming at a time of soft export demand may cause demand growth for commodities to undershoot some current projections."

Although China's revised growth target has led to the Australian dollar's decline, the equities market is seen getting a lift as it relieves pressure from import competing industries led by tourism.

The Reserve Bank of Australia is expected to reveal its benchmark cash rates later this afternoon. Analysts perceive the central bank will be maintaining its current key rates.

Markets strategist Stan Shamu of IG Markets notes that a possible economic growth by the middle of the year will be curtailed if consecutive downward rate adjustments will be made.

"A less-dovish stance by the RBA might give some upside to AUD/USD, given money markets are still pricing in 40 basis points worth of cuts over the next 12 months.

This is looking increasingly unlikely as the economy is expected to get back to trend growth towards the middle of the year," Mr Shamu shares.

He adds that the currency pair to keep an eye on is AUD/NZD, which is up 1.5% in the past five sessions. Sellers are likely to emerge at around 1.3022, which is at the 100-day moving average and the 50% retracement of the December to February (1.3275/1.2768) sell-off.

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