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Ahead of Wall Street

Tuesday, September 10, 2013

More positive data out of China and growing prospects of a diplomatic breakthrough to the Syrian issue will likely sustain the positive stock market momentum from Monday. President Obama’s primetime address to the nation later this evening on the Syria question appears to have been overtaken by growing traction for the Secretary of State’s off-the-cuff proposal in a London press conference. The reduced odds of military strikes is helping reverse some of the safe-haven bids in treasuries and gold and weaken oil prices a bit.  

China’s Industrial Production and Retail Sales data accelerated from the month before, further highlighting the country’s improved growth outlook. Industrial production accelerated at its highest pace in more than a year, by increasing 10.4% in August year over year, up from July’s 9.7% growth pace. August Retail Sales also accelerated from the prior month’s pace. Today’s data follows strong export growth numbers over the weekend and Monday’s benign inflation readings that combined have helped improve sentiment on China.

We should keep in mind, however, that the improving Chinese outlook is not a proxy for better days ahead for all emerging markets. In fact, the outlook for the other major emerging markets like India, Brazil, Turkey, Indonesia and South Africa continues to weaken, with growing likelihood of the Fed’s QE Taper decision at next weeks’ FOMC meeting prompting severe capital flight from those markets. The resulting exchange rate volatility and liquidity crunch is expected to remain a growth headwind for these markets. Bottom line, not all emerging markets are the same; China's outlook may be improving, but the other emerging markets are expected to continue suffering.    

In corporate news, Apple (
(AAPL - Analyst Report)) is on track to refresh its iPhone line-up where the company is expected to unveil a lower priced sibling to its flagship smartphone. The less expensive iPhone is expected to help the company gain market share, particularly in emerging markets like China, but it’s unclear if the incremental market share gains will be coming at the expense of margins. In others news, Goldman Sachs ((GS - Analyst Report)), Nike ((NKE - Analyst Report)), and Visa ((V - Analyst Report)) are set to replace Alcoa ((AA - Analyst Report)), Bank of America ((BAC - Analyst Report)), and Hewlett-Packard ((HPQ - Analyst Report)) in the Dow Jones Industrial Average.

Sheraz Mian
Director of Research


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