Over the weekend the news broke that China experienced its largest trade deficit since 1989 in February, a signal that China is not decoupled from global trade. It is particularly dependent on the Eurozone economy, since the Eurozone is still the dragon's largest trading partner.
The news hit risk sentiment hard in Asia, with most stock indices down, accompanied by falling commodities across the board. In Europe, the Stoxx 600 is currently down 0.2 percent. In the US session, S&P 500 has started 0.1 percent higher.
Oil shares are the worst performers today
Among the worst performing commodities is oil, down 1.3 percent. Oil shares are down as well, with Repsol (-1.6%) and Statoil (-1.1%) the worst performers. We expect same pressure on US oil companies during the US session.
What level of oil prices will affect the US recovery?
Much discussion has taken place about higher oil prices and how much in the way of high prices the US economy, still in the first stages of recovery, can take. One of the leading researchers in the field, Professor James Hamilton, has conducted several studies. His main conclusion is, also expressed on his blog, is that:
"...an oil price increase that does no more than reverse an earlier decline has a much more limited effect on the economy than if the price of oil surges to a new all-time high."
The chart above is from James Hamilton's blog and it shows the 48-month average retail price on gasoline. As long as we are below previous peaks, this surge in oil prices is not enough to derail the US economic recovery, according to his theorey. If you inflation-adjust the figures, there is even more elbow room before the gasoline prices would begin to affect the recovery.
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China Trade Deficit is Weighing on Equities; Oil Shares Fall
Published 03/12/2012, 12:23 PM
Updated 03/19/2019, 04:00 AM
China Trade Deficit is Weighing on Equities; Oil Shares Fall
China sees largest trade deficit since 1989
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