Market commentary: Chinese data disappoint, add to global growth concerns

Asian markets closed today’s session relatively unchanged, with the Nikkei 225 closing flat and Australian stocks declining by 0.14%; while Chinese shares posted another day of solid gains, with the Shanghai Index adding 2.12% and the Hong Kong Index jumping 2.73%. European markets opened lower this morning on the back of disappointing imports/exports data from China.

Overnight China released the official data related to exports for the first quarter of the year, which came in much lower than expected. The data released show that overseas shipments declined by 14.6% in domestic currency and as much as 15% in US dollar terms. This is a rather disappointing number since a survey conducted by Bloomberg News had estimated an increase of 8.2%.

The sudden and unexpected fall in Chinese exports will most likely add to analysts concerns over a global economy that is not growing as expected, and will contribute to reinforce the negative view of some economists that have already found in the latest US jobs report a reason to lower their growth expectations.

Furthermore, the latest economic data released by the Chinese authorities also display weaker imports that have declined by 12.7% in US dollars terms. The lower purchases of raw material and industrial machinery and equipment is suggesting that the country’s manufacturing momentum is slowing down and that internal demand is not yet replacing the void within the still investment driven Chinese economy.

In fact, the country seem to continue to run an industrial overcapacity that is likely to weigh on China’s economic growth, which is already seen slowing down below 7% Government target.

The latest disappointing data may put additional pressure on the Government and the Chinese Central Bank to implement further monetary and fiscal measures to support the country economy, address domestic manufacture overcapacity and the ever increasing concerns about a property bubble that could turn into a lending crisis.

Despite the negative imports and exports data, Chinese stocks seem to continue to attract investors who have been pouring money into the country’s equity market for the past six months. The Shanghai Index rose 2.12% today and over 30% since the beginning of the year. The Hong Kong Index also jumped 2.73% during overnight trading and around 19% over the past three months.

With the latest economic data indicating that the second largest economy is slowing down, further monetary measures are also expected to be implemented in Australia, which is China’s largest exporter of commodities and raw material.

While at the beginning of April the Reserve Bank of Australia decided to maintain its reference interest rate unchanged, analysts are overwhelmingly betting on an additional interest cut before the end of the summer. Today the Aussie spot rate dropped as much as 1.47% on the back of the disappointing Chinese data, and it has lost almost 20% over the past 12 months.

With European stocks already negatively affected by the Chinese exports numbers, it will be interesting to see whether investors will decide to sit on the side line at the opening of the US markets, or whether they will disregard the disappointing data pushing stocks higher to extend last Friday’s gains.

This article was issued by Paolo Zonno Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

More in Business Comment