Not the worst start to the week unless you were long oats (-5.8%) but neither was it a great start given that the weak Chinese export data released over the weekend put the frighteners on the global economic bulls with the outcome an increase in tension around markets over the past 24 hours.
Yesterday the Shanghai stock exchange was down 2.86%, while in Japan the Nikkei was off 1% and the ASX 200 fell 0.9% which wasn’t too bad given the miners were get hit hard. Europe was also lower and the US likewise more subdued than usual. Copper also lost another 1.3%, with the March contract dropping to $3.12 lb.
Uncertainty is never good and traders hate it and the point of the weakness yesterday – even if it again proves ephemeral – is that the uncertainty around the Chinese data and the distortions that have been sourced in currency speculation leave the market confused as to the true state of growth in the world’s second biggest economy.
We know that the official target is for growth of about 7.5% this year but we also know that yesterday the RMB fix was weaker again, suggesting that officials will continue to target currency speculation. This is the right policy for the long-term structure of the Chinese economy but it will muddy the Chinese economic waters for a while. So it’s no surprise that mining shares and the Aussie dollar are also down on the day.
So at the close the Dow is 0.4% lower, the Nasdaq is off 0.1% and the S&P 500 is off just 1.7 points to 1876.3.
In Europe, the FTSE and DAX fell 0.35% and 0.91% respectively but the CAC rose 0.10% while stocks in Milan and Madrid were up 0.58% and 0.30% respectively.
On global FX markets, the euro didn’t react to increased pressure on the ECB and its head Mario Draghi to deal with the ongoing threat of deflation after the German Institute for Economic Research called for 60 billion euro of bond purchases each month to avert a Japanese style trap. Euro is fairly stable day-on-day at 1.3875, having traded a fairly tight range.
Elsewhere on global FX markets, sterling is off 0.47% to 1.6638 after Charles Bean from the BoE warned about further GBP appreciation.
If the market won’t listen to Glenn Stevens then why should it listen to Charles Bean – that’s a reasonable question. But the difference here is that even though the UK looks ok relative to the rest of Europe the economy is still plagued with difficulties and has suffered as the GBP rises.
Sterling has found support on my slow moving average now that the fast has broken as I find is usual – a break of this level will open up a decent cascade lower.
The yen has lost 0.21% with USDJPY back at 103.19 while the Aussie is down 0.42% to 0.9015.
On commodity markets, Nymex crude lost 1.42% to $101.12, reflecting the concerns over China. Gold was up marginally at $1340 but more than half a per cent of the low of yesterday. Copper, as noted above, is down and the Ags we watch were all lower, with Corn down 1.87%, Wheat off 0.19% and Soybeans down 2.62%. Elsewhere, Oats fell a whopping 5.8%.
On the data front today, in Australia the NAB business survey will be released at 11.30am, the Bank of Japan releases its interest rate decision this afternoon while tonight we get German trade data, UK industrial production and inflation report and the US NFIB business optimism index, Redbook index and wholesale inventories.