Below trend growth to continue
Investors remain concerned over the apparent soft demand for China’s exports.
Renewed concerns over china’s economic outlook following yesterday’s softer than expected trade numbers halted a five day equity rally and triggered a bid for safe haven assets.
China’s February trade data disappointed with both exports and imports printing below expectations (-25.4%yoy and -13.8%yoy respectively). China’s figures at this time of the year are highly affected by seasonality factors. China’s lunar new year was one week later this year and given that the numbers are expressed in year on year terms, the base effect from the large export figures last year was always going to weigh on this year’s February print (last year, China’s export figures jumped 48.9% yoy).
All that being said, market reaction to the numbers suggests investors remain concerned over the apparent soft demand for China’s exports. In that regard, we would note that soft export demand is more of a global than just a China story, for instance yesterday Japan’s trade figures also showed a big drop in exports. For now, seasonality distortions suggests to us that is probably a bit too early to draw any big conclusions. Watch this space, however, March trade figures will be very important.
Looking at equity markets overnight, all main European main indices ended the day in negative territory. Euro Stoxx closed -0.63%, FTSE 100 -0.92% and the DAX -0.88%. The negative tone from Asia and Europe set the tone at the start of the US session with materials and energy sectors leading the move lower. Later in the session US equities recovered a bit of lost ground, however as we type they are still in the red with the S&P down 0.72% while the Dow is -0.32%.
In currencies, the Yen is the only G10 currency that has outperformed the USD, confirming once again its safe haven status. The AUD is the best performing commodity currency, down just 0.15% and still comfortably trading with a 74 handle (currently at 0.7450). On this score, we would note the AUD appears to have been supported by the resilience in the iron ore price. After yesterday’s spectacular 18.6% jump, today the bulk metal is only down just 0.2%. In contrast, the CAD is the worst performing G10 currency (-0.83%) followed by the NOK at -0.68%. Both currencies got little help from the drop in oil with Brent -2.5% and WTI -3.1%.
The risk aversion tone to the overnight session boosted the demand for core global bonds. This demand was also aided by a very strong 30y Japanese bond auction which help pushed 10y JGBs to an all-time low yield of -0.1%. In Europe, 10y Bunds fell -4.2bps to 0.18% and 10y UK gilts dropped 9.6bps to 1.382%. Relative to Sydney’s closing levels 10y UST are down 5bps ad currently trading at 1.829%.
Data releases overnight had little impact on the price action. German industrial production jumped 3.3% in January, its biggest monthly jump since May 2009 and Eurozone Q4 GDP yoy beat expectations at 1.6% vs1.5% exp. In the US, the NFIB small business optimism index fell to 92.9 in February from 93.9 in January, below the 94.0 consensus.
In Australia this morning at 10:30am we get Westpac’s consumer confidence reading for March and an hour later at housing finance approvals for January are released.
The consumer confidence survey was polled last week, at the time core equity markets were trending higher and we also got a better than expected Q4 GDP print. Given this backdrop our economists suggest that an improvement in sentiment is on the cards.
As for housing finance approvals, after a 2.6% increase in the number of owner occupied loans approved in December, NAB looks for a partial payback of -1.4%, a higher level than the market consensus of a -2.0% decline. In terms of investment lending approvals, the expectation is for a stabilisation in the numbers following the decline seen in the second half of 2015.
In offshore markets, this morning we get Japan’s machine tool orders for February and tonight we get UK’s industrial production (Jan) followed by US wholesale inventories (Jan).
Ahead of the RBNZ and ECB policy meetings tomorrow, the Bank of Canada (BoC) meets tonight. Bloomberg is showing a unanimous view from the 25 economists surveyed with all expecting the BoC to remain unchanged. While the Canadian economy is still growing below trend, the better than expected Q4 GDP print as well as the higher than expected January inflation reading suggest the BoC can afford to stand spat, at least for the time being. Similar to Australia, uncertainty over the global economic outlook means that the BoC is likely to retain an easing bias with the Federal budget becoming a focus later in the month.
On global stock markets, the S&P 500 was -0.80%. Bond markets saw US 10-years -7.35bp to 1.83%. On commodity markets, Brent crude oil -3.13% to $39.56, gold+0.0% to $1,264, iron ore -0.2% to $63.63. AUD is at 0.7444 and the range was 0.741 to 0.7473.
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