Risky assets stumble after disastrous trade data from China

Summary:

• China reports huge disappointments in terms of trade data for December

• Chinese stocks move lower, Antipodean currencies lose momentum in the aftermath

• China plans to roll out measures to maintain stable employment

It’s all about China this morning

A slew of trade numbers we were offered overnight pushed risk-related assets substantially lower in response to a fading demand from the world’s second largest economy. In December China’s exports fell 4.4% YoY, the largest monthly decline in two years while imports contracted as much as 7.6% YoY reflecting weakish demand momentum there. It resulted in a trade surplus of $57.1 billion for the last month, well above the market consensus of a $51.5 billion surplus.

China reported the ugly trade data signalling the fading domestic demand in the world’s second largest economy. Source: Bloomberg

For the entire 2018 the numbers do not look better. China’s overall trade surplus was $351.8 billion with exports rising 9.9% YoY and imports picking up 15.8% YoY. In turn, looking at a trade relationship with the United States along it turns out that the China’s trade surplus grew by a stunning rate of 17% YoY hitting $323.3 billion, the highest value on record dating back to 2006. China’s exports to the US in 2018 rose 11.3% YoY, whereas imports climbed 0.7% YoY contributing to the record surplus for the year. Note that both the US and China have been embroiled in a trade dispute during the second half of the past year. It paradoxically helped inflate a surplus for the 2018 due to “front-loading” in exports before US tariffs came into effect. In a comment to the data the China’s Customs Bureau said that trade growth might slow this year, and the biggest worry in this field for China was still external uncertainty, protectionism. It also added that the China’s economy was still growing steadily in 2019, but it faced a high base effect and some external headwinds.

The Australian dollar is struggling this morning being, next to the kiwi, the weakest major currency. Technically the pair is coming back to the supply zone placed nearby 0.7150. This area may provide some support for bulls, hence new buyers may try to enter the market. Source: xStation5

Stable employment

Looking beyond the trade data one needs to focus on the news which was brought by the Chinese official news agency Xinhua on Sunday. It said that China would roll out a series of measures to maintain stable employment this year. Moreover, some sourced were cited that China planned to set a lower economic growth target of 6 to 6.5% this year, down from “around 6.5%” in 2018. Among measures the country is considering one may single out a reduction in the burden on companies by allowing enterprises with fewer or zero layoffs to take half of the previous year’s unemployment insurance premium back.

A range trading in the Hang Seng (CHNComp) has narrowed recently and now the price is being traded at a lower range. Note that the breakdown seen at the beginning of this year (the price falling through 10000 points) might have increased odds to see lower levels in the months to come. Therefore, we perceive any more noticeable rebounds rather as corrective moves than a start of a new bull market. Source: xStation5

In the other news:

• Oil prices trade 1.3% lower following the Chinese trade data even as oil imports held steady last year

• SP500 futures trade 0.9% down, DAX30 futures decline 0.7% pointing to a weak start of trading

• UK’s PM Theresa May warns that a failure to back her deal risks a no deal Brexit, she adds that it is time to forget games and do what is right; a vote on her deal is scheduled for tomorrow with tiny odds to be passed by the parliament