Equity markets have dropped sharply today after Chinese February trade data came in much worse than expected earlier this morning.
A sharp decline in exports of 25.4% would appear to point to continued weakness in the global economy, and while some of the decline may well be down to the timing of Chinese New Year, the fact that the number missed expectations by such a long way does raise concerns that global demand could be much weaker than people realise.
Imports also fell sharply, down 13.8% but they did improve on the January numbers, but they also missed expectations.
This sharp decline in economic activity over the past month rather belies the recent rebound being seen in commodity prices, and puts this weekend’s retail sales and industrial production data firmly in the markets’ cross hairs. A similarly abysmal showing on these numbers will inevitably raise expectations of additional easing measures from Chinese authorities, especially if the ECB acts decisively later this week.
The biggest fallers are the mining stocks unsurprisingly given recent strong gains with Anglo American (LON:AAL) and Glencore (LON:GLEN) leading the fallers into a very large sinkhole, as they reverse the gains of the last two days.
On the plus side German economic data showed a marked improvement in January rising 3.3% after a 0.3% decline in December, reinforcing the reality of a multi-speed European economy.
Burberry (LON:BRBY) shares are shrugging off the China gloom on reports that the company might be on the radar as a takeover target.
Tesco (LON:TSCO) shares are also higher after the latest Kantar report showed that its decline in sales was starting to slow. Sainsbury’s (LON:SBRY) continued its progress as the outperformer in the sector as sales showed a gain for the eighth period in a row.
Pharmaceutical stocks have stood out with Glaxo (LON:GSK) higher after revealing some encouraging results from its new Nucala asthma drug.
US
US markets have followed in Europe’s footsteps this morning with a lower open, despite eking out gains in yesterday’s session, as commodity prices slid back in reaction to this morning’s Chinese economic data.
The energy sector which had driven yesterday gains has helped lead today’s declines
Comments from Fed officials Brainard and vice Chairman Stanley Fischer appear to point to some divisions on the FOMC as to the current risks facing the US recovery. Ms Brainard focused on the downside risks to the US economy from international cross currents, while Stanley Fischer was much less dovish saying that he could see the first stirrings of inflation.
These divisions look set to dominate the debate amongst Fed officials as they go into blackout mode ahead of next week’s meeting.
FX
The worst performing currencies have been the Canadian dollar and Norwegian krone on the back of today’s slide in oil prices.
The Japanese yen has been the best performer on a negative day of equity markets as it reverts to its default position of being a haven currency.
The euro has also outperformed after this morning’s better than expected German economic data but is currently struggling to get above the 1.1050 level against the US dollar.
The pound has also come under pressure after today’s testimony from Bank of England governor Mark Carney articulated some key concerns about potential risks to financial stability in the event of a leave vote in this June’s “Brexit” referendum.
Commodities
Oil prices have slipped back from two month highs after breaking above some key resistance levels ahead of this week’s key inventory data. The recent gains have been driven by continued US dollar weakness, while falls in US production levels, while not currently affecting inventory levels, is creating speculation that these levels could well plateau and eventually fall back.
The recent break above these highs could well signal further gains in Brent towards $44 a barrel, in the longer term, however the reality is that supply is likely to continue to outpace demand until we see a pickup in global economic activity. With Iran looking to increase its own market share any upside is likely to be limited, notwithstanding the ability of US shale producers to bring back currently mothballed shale assets which are currently uneconomic at current price levels. A move back below $36 could well be the catalyst that calls time on this particular rebound.
Copper prices have also slid back sharply after failing to break above the 200 day MA, helped on its way by this morning’s disappointing Chinese economic data.
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