Europe moves forward as US faces growing challenges

After the disappointment of the US jobs report on Friday September 6 and increasing turbulence in Syria, Europe’s markets look to be on the front foot after better than expected data from China and Japan on September 9.

To begin with, Chinese trade data for August pointed to a continued recovery in the world’s second biggest economy.

Exports rose by 7.2 per cent, more than the 5.5 per cent estimate driven by increased demand from the US and Europe.

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This was tempered somewhat by a smaller than expected rise in imports, which came in at 7 per cent which would appear to suggest that the drive to stimulate demand domestically is still encountering some difficulties.

In spite of these concerns, it would appear that the recent tax cuts and boosts in infrastructure spending announced by the Chinese government a few weeks ago are starting to have the required trickle-down effect and have raised expectations that GDP growth could come in slightly above the 7.5 per cent consensus.

In Japan, the recent optimism about the economy continued after the country managed to secure the 2020 Olympics, raising expectations of a confidence and a construction boost, while the latest quarterly GDP numbers came in at 0.9 per cent for the second quarter, with business spending providing a significant boost, showing that the current expansionist policies of the new Japanese government continue to filter down through the economy into a strong recovery.

The Australian dollar has also enjoyed somewhat of a pop higher after the landslide weekend election of a new prime minister Tony Abbot, to replace the incumbent and now somewhat dysfunctional Labour Party who have ruled the country for the past six years. The new government is widely expected to be much more business friendly and expectations are high that the coalition will deliver on its promises to scrap carbon and mining taxes as well as cutting red tape.

In spite of this positive data, sentiment is still likely to be driven by news flow surrounding Syria as US President Obama seeks to gain congressional approval for military action in response to the gas attacks in August, as well as continued speculation about the timing of the Fed’s tapering intentions after last Friday’s disappointing August jobs report.

Some have speculated that the fall in the unemployment rate to 7.3 per cent makes it much more likely that the Fed will start their tapering program this month; however the continued fall in the participation rate as well as continued downward revisions to previous month’s data completely undermine the relevance of this particular statistic.

Ultimately, we are probably no wiser as to the Fed’s intentions than we were a week ago.

Meanwhile in Europe, with little in the way of economic data today, all eyes are on Italy after prime minister Letta’s comments of the risk of fresh political turmoil as an Italian senate committee met at the start of this month to begin a debate that could mean Silvio Berlusconi’s expulsion from parliament following his conviction for tax fraud.