China’s lackluster December trade data was not well received by global equities on Monday although it certainly could have been worse overnight.
Exports and import growth cratered in December, underscoring concerns about global growth, heightening worries about the Chinese economy and increasing the urgency around the US-China trade talks.
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“The large contraction in imports was broadly consistent with a significant decrease of exports in December from Korea and Taiwan to China”, Goldman writes on Monday, adding that “exports growth has been weaker than expected over the past two months, and sequential momentum has slowed significantly to a contraction since November from a strong rebound in September, which has been probably due to the fading impact from front-loading ahead of 10% tariffs levied on $200bn Chinese goods starting in late September (and ahead of the potential–and so far delayed–increase of tariffs on these goods to 25%).”
The commentary out of other desks paints a similar, if entirely predictable picture (that may be bad English – can one “predict” how a “picture” is painted?). Barclays, for instance, sees export and import growth cratering in Q1.
“Reflecting the likely fading impact of front-loading and seasonal effects, we expect export growth to continue to decline visibly, likely to around the -20% level in Q1, before starting to recover slightly but staying in contraction territory due to base effects”, the bank said this morning, before noting that “still-low commodity prices and weaker domestic demand” mean imports could “trough at -15% y/y in Q1 19 before edging up to -10% in Q2 19.” The read-through: Barclays sees downside to their 6.2% 2019 growth target and believes it’s likely to be left to monetary policy to do the heavy lifting as fiscal policy is “constrained.”
For their part, BofAML flags tech. “Exports of hi-tech products fell notably in December, by 10.3% y/y after rising 2.8% in November [and] in particular, exports of integrated circuits and mobile phones fell by 2.6% and 31.1% y/y respectively in December vs. +17.5% and -2.0% yoy in November.”
That’s what we meant on Sunday evening when we said this in the linked post above:
Our guess (and we’re not even going to bother digging too deeply into this until tomorrow) is that this bodes ill for tech stocks globally, but we’ll see.
European tech is indeed lower on the session, although there’s still time for things to turn around.
(Bloomberg)
As far as Asian equities go, Hong Kong was hit the hardest, which isn’t surprising. The Hang Seng snapped a six-day win streak, while H-shares fell for the first day in seven.
(Bloomberg)
For its part, the yuan pared an early gain as the lackluster data stokes expectations of monetary easing on top of the RRR cut (analysts already expected ~3 more RRR cuts in 2019, and if the data keeps disappointing, it’s probably going to take more than that, as the effectiveness of those cuts appears to be relatively limited). This probably adds to the case for a near-term pullback in the currency coming off a stellar week. The PBoC was already concerned about recent yuan strength and the export miss will probably add to those concerns.
(Bloomberg)
Finally, the risk-off mood was readily apparent in the yen, as USDJPY dropped with US equity futures.
(Bloomberg)
For now, we’ll leave you with the following possibly useful graphic from Barclays.
(Barclays)
This is buy the dip or miss out ….but not the steroid version.. Market setting up for the phony trade solution version 6 (or so).. Sustainability of rally depends on spin and hype.. I suspect it is going to be short lived…