50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

China Exports Slump While Governor Carney Faces MPs

Published 08/03/2016, 08:30
Updated 03/08/2021, 16:15
EUR/USD
-
GBP/USD
-
USD/JPY
-
EUR/GBP
-
UK100
-
FCHI
-
DE40
-
LCO
-
FTLC
-
DXY
-
TIOc1
-
HRCc1
-
UCXMc1
-

What a difference a few weeks makes as the recovery in mining sector stocks continued apace yesterday. Since the lows set on the 20th January the FTSE350 mining index has managed to rally over 70%, as a combination of capex cuts, a weaker US dollar, and a stabilisation in commodity prices has helped mitigate some of the wider solvency concerns surrounding the sector.

The almost 20% rebound in iron ore prices yesterday to levels last seen in mid-June last year on expectations of a significant expansion to Chinese stimulus after the weekend pledges to meet a 6.5% to 7% GDP target, appears to be symptomatic of the febrile nature of the shifting sands of sentiment in financial markets currently.

Questions remain as to the sustainability of the gains given recent pledges to cut back on output and jobs in their steel and coal sector. Last week Chinese officials pledged to cut back nearly 2m+ jobs in their coal and steel sector, and in that regard Chinese output is likely to be much lower in the coming months and years, which suggests that this rebound could well be vulnerable to a setback.

This morning’s latest Chinese trade numbers for February speak to that concern about the Chinese economy as imports declined 13.8% and exports declined 25.4%. Expectations were for a 12% decline in imports and a 14.5% decline in exports. While some of this will undoubtedly be put down to the timing of the lunar New Year the numbers are nonetheless still pretty poor with the export performance the worst since 2009.

Oil prices also hit their highest levels this year, above $40 as traders speculated that falling US output would eventually translate into falling inventory levels. With talk of another producers meeting scheduled for later in the month and a weaker US dollar the line of least resistance appears to be for a move back towards the $45 a barrel level as bearish bets get ripped out.

Despite yesterday’s gains in commodity prices European markets struggled to maintain their recent momentum as investors looked ahead to this week’s ECB rate decision, with banking stocks leading the declines in Europe. Italian banks once again were getting clobbered as concerns about non-performing loans resurfaced again.

The Bank of England will also be in focus this morning as governor Mark Carney testifies to the Treasury Select Committee on the implications of the referendum vote.

Policymakers are likely to have questions on the timing of yesterday evenings specific pre-announcement of three extra liquidity auctions for banks at around the time of the June Brexit referendum.

Questions will inevitably be raised as to not only the timing of it, a week before next week’s budget, but also why the Bank felt it necessary to publicise it when they felt no such compunction to do so before the Scottish referendum vote.

Whatever the rights and wrongs of last night’s public announcement the bank is running the risk of becoming a political football and while it is surely sensible to implement a policy of contingency planning, surely it would have been just as easy to inform MPs today that measures were being put in place, and notify the banks the facility was available if needed without making a melodrama out of it?

Anyone would think we’re voting to leave the euro, we already have our own currency, which means a bank run is highly unlikely.

EUR/USD – the 200 day MA at 1.1050 remains a key resistance, with a break targeting the 1.1200 area. Support remains at last week’s low at 1.0800, with a break targeting 1.0600.

GBP/USD – continues to look well supported on dips with the potential for further gains towards 1.4400. To maintain the current momentum we need to hold above the 1.4080/90 area, to keep the bullish momentum intact. A fall below 1.4080 retargets the lows at 1.3835.

EUR/GBP – last week saw a bearish engulfing reversal suggesting the potential for further losses towards 0.7520. We need to get below support at 0.7690 for this to unfold, and stay below the 0.7830 level.

USD/JPY – currently range bound between support at 110.00 and resistance at 114.90 we need to see a break one way or the other for clues as to the next move. With resistance at 114.80 we would need a technical break of 116.00 to argue a short term base is in place. While below 115.00 the risk is for a larger move lower to 106.00 in the longer term.

Equity market calls

FTSE100 is expected to open 37 points lower at 6,145

DAX is expected to open 53 points lower at 9,735

CAC40 is expected to open 20 points lower at 4,422

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original post

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.