**15/11/10 - 8.40am - by James Gerrish**
Some selling came into the market last week as concerns that Ireland may default on its debt and worries that China may hike rates to tackle a rising inflation problem sent investors out of growth orientated assets like commodities.
I think China was really the main concern here with October inflation data (released on Thursday) showing a rise of prices by 4.4% year on year. Rising food prices have been the main driver for an increase in the Consumer Price Index (CPI) - they have risen 10.1% this year and 1.1% in October alone.
This has prompted further suggestions of more aggressive interest rate hikes to coincide with the increase in bank capital requirements that have been rolled out over the last few months. The implication for Australia is pretty clear. If China tightens too much and the economy slows too dramatically, then demand for our exports will slide along with the prices of our key commodities.
This is obviously a concern the market worked through last week and a look at the Shanghai Index tells you the reaction was pretty clear. The Shanghai Composite was off more than 5% on Friday booking the worst 1 day performance since August of 2009.
Given that our core investment theme
is to invest towards the growth in emerging markets which is driven at the moment by China, its obviously important that we get a handle on the outlook for inflation, monetary policy and the implications for commodity demand. I'll be sending a more detailed note out on this topic shortly.
Looking at the market on Friday, the DOW JONES lost -90 points or -0.8% to close at 11192 . The S&P 500 suffered a more aggressive sell off down -1.18% so to the Nasdaq which lost -1.45%.
Some company specific news this morning with BHP officially pulling the pin on its bid for Potash Corp and announcing plans for a share buy-back. The buy back is only modest so I don;t think it takes the chance of further acquisitions off the table at this stage. Kloppers appears to be having a bet each way at the moment and this probably reflects the diversity of investor opinion on the Buy Back v Acquisition scenario.
CBA also released a trading update this morning which looks positive on first glance. Maybe one to watch this morning.
More to follow later today.
