Global Markets Overview – October 21, 2013

Bottom-up optimism

Corporate earnings optimism is certainly driving US market as we expected - Apple released its results and the initial reaction to its thumping results added 1.1% in after-hours trade. It was up 2.1% in the cash market.

The result was all about the iPhone, with 39.9 million units solid in the quarter versus an estimate of 38 million. Revenue and earnings per share smashed highly conservative estimates. The AAPL results are likely to see the NASDAQ having another very positive day tomorrow.

On the other side of the US earnings releases, IBM abandoned its 2015 forecast. This saw its price fall to three-year lows - it was down 7.1% in the cash market. Due to its massive price weighing on the DOW (taking out 83 points alone), the slide in IBM distorted the broader enthusiasm around US corporate earnings. We have always believed this US earning season would be a positive for stocks in the US, considering the low estimates.

However, Europe gave back half of its gains from Friday and the movement in the DAX and CAC still give us reason for concern. Also, November is traditionally a negative month following rallies on quarterly earnings in October. There is still plenty of concern about European growth and trade remains volatile on both side of the Atlantic - after US earnings season, the US market is likely to be tested once more.

Asia today is watching one of the biggest data drops of the year as China's third quarter GDP figures are released. The third quarter always provides some fireworks as it is the last read before the end of the year, giving the central government and the PBOC its final chance to work out if yearly targets will be met. Year-on-year estimates have GDP coming in at 7.2%, with quarter-on-quarter growth estimated to fall to 1.8% from 2% last quarter. This will have a very interesting trading reaction if the estimates come to fruition.

Will the market rally on expectations of stimulus to bolster the Chinese economy? It will need some assistance in the last quarter of the year to reach full-year estimates of 7.5%. Will the market slide on a poor number considering the government says it will no longer intervene in the market?

These open questions explain why the print will be so influential on trading today. Material plays have rallied strongly over the past week and the ASX is on the cards for its sixth consecutive day in the green. China may change this.

What might be lost in the noise around the GDP read is the fact industrial production, fixed asset investment and retail sales are also being released. Industrial production is key here - having fallen to 6.9% last month, it needs to be in the high sevens or low eights to have any chance of reaching the estimated GDP figure.

The market will also be watching whether this area will see assistance from the targeted banking measure of the past four months. It is likely to see more help if it remains soft.

Ahead of the Australian open

As mentioned, the ASX Is on track for its sixth consecutive print in the green. We're currently calling the ASX 200 up 17 points to 5336, suggesting the gains are slowing. With the full-year numbers from the banks a week away, banks should remain supported. However, Chinese GDP today and negative prints from RIO and BHP in London materials may drag. It will be a very muddled trading day today.

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