Chinese exports slump, oil rises on news from Saudi Arabia

Summary:

• Chinese exports slump in August for all new tariffs starting on September 1
• Oil prices jump after Saudi Arabia’s king appointed his son as energy minister over the weekend
• Chinese press signals more reserve requirement ratio cuts are in the offing

Surprising decline

Chinese foreign trade data for August was one of the most important information we were offered over the weekend as it showed a surprising decline in exports of 1% in annual terms (USD terms). At the same time, exports to the United States plunged as much as 16%, slowing brutally from a 6.5% decrease registered in July. Given the fact that a new round of US tariffs on Chinese goods came into effect on September 1, expectations pointed to a possibility that China would front-load purchases as a result, hence the median estimate for exports was a 2.2% increase. The question is, did weak exports come in spite of the fact that China front-loaded its purchases of goods ahead of tariffs or the country did not front-load exports at all? If the former hypothesis is true, it could add to uncertainty regarding global trade activity suggesting sluggish foreign demand. Apart from it, imports dwindled 5.6% compared to the same month last year, leaving a trade surplus of $34.8 billion, down from $44.6 billion in July. In turn, a trade surplus with the US shrank to $26.9 billion from $28 billion in the prior month. Overall, the data does not seem to offer any reassuring signals adding to trade ware uncertainties and weighing significantly on economic activity all over the world.

Chinese exports to the US saw its second decline in a row (measuring by 12-month rolling sum), the first such a pattern since the beginning of 2017. Source: Macrobond, XTB

New energy minister in Saudi Arabia

Both Brent and WTI oil prices are climbing roughly 1% in early European trading hours following the news we got on Sunday from Saudi Arabia where king Salman Bin Abdulaziz named his son Prince Abdulaziz as new energy minister, replacing Khalid al-Falih, who was at the helm of the ministry for the last three years. Although Saudi’s king did not offer a specific reason behind his decision, unofficially there were some voices that he failed to keep oil prices high enough to support government spending. Let us notice that $60 per barrel is too low for the OPEC’s de facto leader to balance budget as the country needs the price closer to $80 per barrel. In the eyes of market participants, it seems that they believe a new minister will be able to push prices higher maybe by possible sharper production cuts. In this regard, it is important to notice that a Saudi official said over the weekend that the country would continue its policy regarding output cuts. 

WTI prices are attempting to break above their critical technical level following the news from Saudi Arabia. Source: xStation5

In the other news:

• China is likely to launch more reserve requirement ratio cuts this year, according to China’s Global Times; it adds that China is under dual pressure from the trade war and domestic economic adjustments

• Japanese economic growth for Q2 was revised down to 1.3% from 1.8% in annual terms, the revised reading matched expectations

• Australian home loans increased in July by 4.2% MoM, while investment loans rose 4.7% MoM at the same time