Chinese trade data disappoints, sending risk assets lower

Tuesday, December 08, 2015

Chinese trade data released overnight painted a bleak outlook for the world’s second largest economy, prompting another run on Asian stocks with the miners in London under renewed pressure. Exports continued to decline as the global demand outlook struggled to improve, slipping 6.8% y/y in November against expectations of a 5% drop. Imports fared slightly better although appetite was still subdued as November statistics indicated a -8.7% decline against a -11.9% expected decline. The trade surplus fell to $54.1bn from $61.64bn the previous month on account of the worse than expected exports which have registered substantial declines for the past five months straight.

Mainland Chinese stocks led the charge lower overnight with both the CSI 300 and Shanghai Composite losing between 1.7%-1.9%. The yuan experienced further weakness against the dollar with onshore prices trading back at a three month low against the dollar towards 6.4182 as investors reacted acutely to the news that China’s forex reserves declined to their lowest level since March 2013, dropping by $87.2bn throughout November to $3.53tn, bringing the total decline throughout the year to $405bn. The PBOC has had a very busy year and was forced to sell dollars last month as it stepped up its attempts to shore up the currency ahead of IMF approval to include it in their SDR currency basket. It seems their efforts paid off and policymakers have signalled that they will take a more relaxed approach to monitoring the currency, affording it the necessary freedom as it heads down the path of becoming a fully free floating currency.

Front month Brent futures sank to their lowest level since the financial crisis as the price per barrel hit $40.60 on selling that dominated the entire day as the effects of last week’s OPEC meeting together with weaker than expected Chinese trade data exerted significant downward pressure on the crude oil market. Prices for the global benchmark lost over 6% yesterday as the fallout from OPECs indecision to come to an agreement exposed the oil market to further weakness. Instead of holding their production quota around the 31m bpd mark as many had expected, the cartel once again reaffirmed its no limit output outlook with the daily quota seemingly abandoned altogether. Last week’s meeting offered a unique insight into the fractured group with contradictory comments from members in the run up which will only serve to further erode confidence in the group’s ability to stabilise oil markets. Indeed with no definitive outlook on when the taps will be turned off it seems as if the supply glut looks set to continue with prices likely to remain under pressure well into the coming year.

China's trade surplus slips in November

CNFRBAL Index China Imports 2015 12 08 07 40 44

CNY experiences further pressure from USD

CNY Curncy China Renminbi Spot 2015 12 08 07 45 49

Front month Brent futures hit fresh low for the year

CO1 Comdty Generic 1St CO Fut 2015 12 08 07 56 37

Events for today

0130

CN

Nov

Trade Balance

0130

CN

Nov

Imports

0930

UK

Oct

Industrial Production

0930

UK

Oct

Manufacturing Production

1000

EZ

Q3

GDP

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