Trade still falling in China
Yesterday’s Labor Day holiday in the United States ensured that markets so far this week have been relatively quiet, although we are walking in to rather a weaker dollar this morning. Overnight news out of China has been poor with the latest trade data pointing to ongoing deflation concerns and ripple effects through monetary policy once again being priced in.
China’s exports declined by 5.5% in August on a value basis following their 8.3% drop in July. Imports also fell by 13.8%, and while that will swell the trade balance considerably, it does mean further issues for both China and the rest of the world. The transmission mechanism remains initially into the emerging markets locally, then globally and then into developed markets. That said, Janet Yellen and Mark Carney seem relatively sanguine about the risks to their respective economies. Not so Mario Draghi in his comments last week, which sounded an alarm on the perceived effect on the European economy courtesy of the continent’s trade ties to the emerging markets.
Sideways markets
As it stands at the moment, the impact on commodities is driving the USD lower this morning with both EURUSD and GBPUSD pushing higher. We are back into the ranges that we are likely to occupy for the next week, one would think, save something unexpected happening in Chinese data.
Staying in Asia briefly, more and more economies are flashing warning signs. News out of Korea last week showed a 16 year low in exports, whilst last night’s Japanese GDP data showed a massive increase in inventories that, while GDP fell by less then expected, should dampen the recovery as further production and consumption is delayed. The yen is stronger this morning, however, on the muddled run for a haven following the news from China.
Germany out front
The euro is strengthening on those current account positive haven flows as well this morning, aided by German trade data overnight. If there was one country that was able to benefit from a weaker euro it was Germany and exports rose by 2.4% in July. August’s numbers, however, will give us a picture of how hard China has hit the exporting heart of the Eurozone. Germany delivers its latest Budget this morning. Will we see further fiscal loosening for the benefit of the wider Eurozone?