Strong China data drives up equities

David Russell (david.russell@optionmonster.com)

Stocks are indicated to open higher this morning amid evidence of accelerating growth in China. S&P 500 futures rose by about one-tenth of a percent, while European indexes are little-changed.

Shanghai was the big mover in the overnight session, rallying more than 4 percent after the HSBC purchasing managers index beat expectations and signaled expansion for a second straight month. The news was especially positive because it comes despite weakness globally, and therefore reflects stronger domestic demand in China.

While more economic data comes from the United States, those reports will probably have less impact on sentiment than the Chinese PMI. Consumer prices and industrial production are both due before the market opens, but inflation isn't a worry for investors now and industrial production is mostly backward looking. The one event that could move the markets would be news from Washington regarding the so-called fiscal cliff, with signs of a resolution probably driving money into equities.

The S&P 500 has risen more than 3 percent in the last month and is pushing against a price range that was resistance in early November. It fell yesterday but found support above its key 10-, 50- and 100-day moving averages, which could be leading some chart watchers to expect further gains.

That strong Chinese data is lifting commodity prices this morning. Crude oil rose by more than 1 percent, while copper and silver advanced by more than half a percent. Most agricultural foodstuffs are also positive and gold is little-changed.

Foreign-exchange trading is modestly bullish, with the euro slightly higher. The real story may be continued weakness in the Japanese yen. If the trend continues, it could drive more gains for commodities because some traders sell yen to buy items like copper and oil--a common strategy in 2006 and 2007.

In company-specific news, Adobe Systems is indicated to open higher by 6 percent after quarterly results beat consensus. VeriFone Systems is down almost 7 percent after its revenue and outlook missed expectations.

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