Dismal Chinese Trade Data Sets Tone

Overview: 

China's exports and imports were weaker than expected, though the trade surplus swelled to its widest in a couple of years. The implications have undermined equities and weighed on risk appetites more broadly. Nearly all the Asia-Pacific markets were lower except Japan and the Dow Jones Stoxx 60o in Europe is off 0.5% near midday to snap a four-day advance. US S&P 500 is about 0.8% lower. Core benchmark 10-year bond yields are off two-three basis points while peripheral yields are off a bit less, and Italy is bucking the trend with a couple basis point increase. The Antipodean currencies are the weakest (~-0.3%), while the yen (~+0.3%)and Swiss franc (~+0.15%) are performing best. The US government shutdown is now in the 24th day.

Asia Pacific

China's December trade surplus widened to $57.06 bln from a revised $41.86 bln in November. The larger trade surplus hides a significant deterioration, which many see as a further confirmation that the world's second-largest economy hit the shoals in Q4. Exports, which the median forecast in the Bloomberg survey called for 2% increase fell by 4.4%. This is a two-year low. Imports were expected to have risen 4.5% and instead tumbled 7.6%. Exports to the US rose 9.8% in November and plummeted to -3.8% in December. This looks like the unwinding of the effect of US front-loading imports from China ahead of threatened tariffs. However, exports to rest of the world also fell, and this is seen as reflecting the global slowdown.The drop in imports appears to be a combination of weaker prices (e.g., oil and semiconductors), and lower import volumes (e.g., industrial commodities). 

Some media reports played up the fact that despite a WTO ruling, China has not even acknowledged receiving applications from Visa and Mastercard. There does not appear to be a new development that brought this story to the front pages. However, it serves the interests of those who are pushing back against a reconciliation between the US and China, which seemed to be gaining momentum after the recent round of negotiations and plans for another set later this month. It illustrates the non-tariff barriers to trade and the shortcomings of the enforcement of WTO decisions. 

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Read more by Marc on his site Marc to Market.

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