Weakness in China is now beginning to concern the rest of the world.
Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness: The September Chinese trade data was very disappointing. Exports in dollar terms fell 10% y/o/y, three times more than expected and they also fell by 5.6% in yuan. Imports fell by 1.9% y/o/y vs the forecast of a rise of .6%. They did though rise 2.2% in yuan terms. The sharp drop in exports brought their trade balance to a 6 month low. In dollars, exports fell across the world. They were down 8% to the US, 10% to the EU (and 11% to the UK), 7% to Japan, and 11% to the rest of Asia. China’s demand for commodities still remains pretty healthy however. In volume terms, the import of iron ore was the 2nd highest level ever. Crude oil imports were also the 2nd highest on record and up 14% ytd y/o/y. Copper imports moderated to the lowest since February ’15 but on a ytd y/o/y basis they are still up 12%.
Bottom line, weak global trade should be a surprise to no one but this certainly highlights it in bold lettering. We saw the WTO say this just a few weeks ago:
“World trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%… With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.”
We can assume with Chinese trade numbers like this, they will continue to let the yuan weaken and it is at a fresh 6 yr low vs the US dollar today. China macro has taken a back seat of late but data such as this should highlight again the mediocre state of global economic activity.
Dealing with their property bubble has also taken center stage again with standards tightening on buying apartments. BN is reporting that the restrictions put in place at the end of September has already had a pronounced effect. Sales in Beijing have fallen by 86% with prices down 24% month to date. In Shanghai, transactions are lower by 35% with prices falling 8%. Also today, S&P said this about the Chinese sovereign credit rating, “China’s reliance on public investment to fuel economic growth is unsustainable and a credit weakness…Consequently, we see support for the Chinese sovereign ratings gradually diminishing.” The stock market response to the Chinese data was mixed as the Shanghai comp was flat but the H share index in Hong Kong was down by 1.8% and the Hang Seng was lower by 1.6%. The Shanghai property stock index rebounded by .8% off a two month low but is still down about 1% this week. The rest of Asia was mostly red. Copper is weaker for a 3rd straight day.
The puke in the pound and the subsequent worries about higher inflation is already happening at ground level. The UK Telegraph is reporting that Unilever “has attempted to raise wholesale prices for UK supermarkets by around 10% in the wake of sterling’s post Brexit plunge, leading to a shortage of Marmite spread, Surf washing powder, Pot Noodles and other products at Tesco.” The reason for the shortage is that Tesco is literally pulling many of Unilever’s products off their website until the pricing dispute is resolved. Unilever said “We are taking price increases in the UK. That is a normal devaluation led cycle.” Mark Carney and his BoE colleagues will be the only other people happy with the rise in UK inflation. A lot of UK citizens are about to get really pissed off.
A day after the FOMC minutes which didn’t tell us much new (yes, it was a close call in September, blah, blah, blah), Harker and Kashkari speak today and the new found hawk Rosengren talks tomorrow.
King World News note – Art Cashin put out the following note about the deteriorating situation in China and the global markets:
Overnight And Overseas – Key event was a drop in Chinese trade data for September. That hit the Hong Kong market sharply. India also got smacked. Other Asian markets saw smaller losses. The China spillover is hitting markets in Europe. … Technicals deteriorating, especially the breadth. Traders fly caution flag. On any sharp weakness, the S&P needs to hold 2118/2121.
***KWN has released the extraordinary interview with Dr. Stephen Leeb, where he discusses the gold and silver smash, what to expect next and much more, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***Also released: John Embry – The IMF’s Warning, Desperate Bullion Banks And Why Their Masters No Longer Care CLICK HERE.
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