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Chinese Concerns Pummel Global Exchanges

Posted by Joseph Trevisani on Dec 8, 2015 3:01:01 PM

Weak Chinese economic statistics and declining equities set the stage for a global stock selloff Tuesday and helped to bring crude oil prices to their lowest level in seven years, as serious worries about the slowing mainland economy roil world markets for the second time this year. 

China's external trade shrank in November with annual exports and imports continuing their multi-month run of negative results.   

Exports dropped 6.8 percent in the last twelve months, the fifth fall in a row and the ninth this year, according to the General Administration of Customs. Economists had forecast a 5.0 percent decrease.

On a Yuan basis exports fell 3.7 percent, as the value of the exported goods was partly mitigated by the 5.1 percent decline of the yuan against the U.S. Dollar. China’s trade surplus narrowed to $54.1 billion from the record high of $61.64 billion last month

Annual imports fell 8.7 percent in November, not as bad as the 11.9 percent forecast and less than half October’s 18.8 percent drop. The Yuan based decline was 5.6 percent.

The world's second largest economy and biggest exporter is attempting to transform itself from a manufacturing powerhouse dependent on exports to a consumer economy mediated by domestic consumption. The transition is proving to be a difficult one as global demand for Chinese exports is falling as the world global economy cools. 

Starting in Asia equities took their cue from the Chinese stock markets.  

The Shanghai Composite slipped 1.89 percent, its largest drop since November 27th's 4.98 percent plunge. The smaller Shenzhen Exchange sank 1.78 percent, also it biggest decline in seven sessions. 

In Japan the Nikkei 225 lost 1.04 percent and the in Hong Kong Hang Seng Index shed 1.34 percent.  The losses continued in Europe, where the Dax in Frankfurt dropped 1.9 percent, the CAC 40 in Paris lost 1.57 percent and the FTSE 100 in London skidded 1.42 percent.  The European wide Euro Stoxx 50 dropped 1.87 percent. 

In the United States the Dow was down 128.10 points or 0.72 percent at 2:47 pm in New York, with the S&P 500 losing 0.51 percent and the NASDAQ off the least at -0.01 percent.  

The price of a barrel of West Texas Intermediatel had stabilized just under yesterday’s closing price of $37.65. It was trading at $37.54 at 2:03 pm on the NYMEX Exchange, having earlier dropped as low as $36.64in mid-morning. That was the lowest quote for the American crude standard since early 2009, in the throes of the 77 percent collapse during the financial crisis. Brent crude, the standard for most of the globe was at $40.26 at 2:39 pm.  It had been as low as $39.81. 

Chinese economic growth slipped to 6.9 percent in the third quarter, according to Beijing government statistics, falling below 7 percent mark for the first time since the financial crisis in 2008-2009. Bloomberg estimates that third quarter GDP was actually 6.60 percent.

Fromthe beginning of 2000 through the end of 2007, China averaged 10.7 annual growth, the highest of any large economy in the world. Concern over a hard landing in the world's second largest economy after years of explosive growth has also been a major factor in the decline in commodity prices for the past two years.

China’s growth rate is expected to continue declining as economic activity is depressed by weak domestic and global demand, by rampant overcapacity in the manufacturing sector, and by cooling business spending due to a scarcity of productive uses for investment.

China is widely projected to post its slowest economic growth in a quarter of a century this year.

Even if 4th quarter growth matches the 6.9 percent of the third, an outcome not predicted by many analysts, it would still place the official figure for all of 2015 at 6.95 percent, the slowest rate since Deng Xiaoping’s  reforms began to take hold in the early 1990s. 

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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