Dragon Fears Reignite

Analisi Giornaliera - 13/10/2016

Chinese Exports Tumble As Renewed Slowdown Fears Emerge


After showing a steady recovery over the last few months in key trade fundamentals following unilateral moves to weaken the Yuan, the latest trade data missed analyst estimates by a wide margin.  With the trade surplus falling to 6-month lows, economists remain concerned about the pace of China’s recovery and the heightened risk for an intensified slowdown.

Chinese Surplus Slides

Following an improvement in the pace exports contraction, the latest figures from China printed well below expectations in September, hurt by weaker demand abroad. Exports last month fell -10.00% percent in dollar terms, versus consensus estimate of a -3.00% percent decline. Imports to the country also took a hit, falling -1.90%, with the overall trade surplus coming in at $41.99 billion, compared to forecasts of a figure around $53 billion. The foreign trade data comes amid the backdrop of steep declines in the Yuan, with the currency last week hitting its lowest levels against the US dollar in close to six years. What should be worrying from an analyst standpoint is that import volumes of key commodities like iron ore and copper have fallen significantly. This could be an early indication that the recent economic recovery might be losing some momentum.


Fed Hawks Warn Rate Hike Delay Could Trigger Recession

Officials at the US Federal Reserve in favour of raising interest rates have warned that waiting too long could lead the economy into a recession according to the minutes from the September FOMC meeting.  The dovish view, which ultimately prevailed, argued that the pace of GDP expansion was still low while inflation remained too muted for the Central Bank to consider immediate monetary tightening.  However, the hawkish bloc that includes Eric Rosengren, Esther George, and Loretta Mester urged the Fed to approve a quarter-point rise. Most analysts now believe the odds of a December hike have improved given Republican Donald Trump's lost momentum in the presidential race. US equity markets ended mixed yesterday, with the Dow Jones Industrial Average and the S&P 500 both finishing marginally in the green.


German Consumer Prices Unchanged

German consumer prices remained flat on a month-over-month basis in September, with energy continuing to exert downward pressure, causing further headache for the European Central Bank at a time when growth is faltering for the Euro Area.  The German Federal Statistics Office reported Thursday that consumer prices harmonized to EU standards were unchanged last month from August, rising a marginal 0.50% from the same period last year.  Despite the negative data, most economists still expect prices to pick up in the coming months, with the ECB likely to revise upwards its inflation projection in December for the first time since March of last year.  The annualized headline CPI figure was slightly more upbeat, rising to 0.70%, the highest figure since May of 2015.  Nevertheless, equities continue to trend lower, carrying over the weakness from the Asian session with the DAX 30 down over -1.00% following the release of the report.


Gold Climbs on Weaker Dollar

Gold prices rose in early Asian trade after the US dollar pared gains against a basket of currencies and equities plunged on weak Chinese trade data. Spot gold jumped 0.50% to $1,260.30 per troy ounce, marking the biggest one-day gain in over three weeks. Gold futures in the US also rallied 0.60% to $1,261.30 per ounce.  The strength in bullion came despite fresh signals from the U.S. Federal Reserve that the central bank is well on track to raise interest rates in December. This suggests gold has already priced in the increased likelihood of a rate hike, and may find support around current levels.  Since peaking for the session, gold prices have since been back on the retreat below $1260.00 as the dollar index, which tracks the greenback’s performance against a basket of six currencies, recovers after a brief dip.


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