In the first nine months of 2018, Chinese equities fell by nearly 25% as the U.S. imposed $250 billion of tariffs on a wide range of Chinese exports in the hopes of striking a new and improved trade pact with China. The Chinese economy and much of the world economy began to slow as evidence of the tariffs began to bite as a slowdown in the Chinese economy affects almost all trading partners. But, the Chinese took proactive steps on both monetary and fiscal policy to help stimulate the economy, and those steps appear to paying dividends as the economy is showing signs of stabilizing.
Last night’s Chinese economic data regarding GDP, retail sales and in particular, industrial production (strongest pace of growth in five years) all came in stronger than forecast. The net result of these better-than-expected numbers has been to set off a mild chain reaction of risk-on sentiment with global equities, commodities, and interest rates all moving in lock step to slightly higher levels. The U.S. dollar (DXY) is slightly weaker with many commodity-linked currencies and emerging market currencies moving higher.
The one downside effect of a Chinese economy that is stabilizing is regarding the current trade negotiations going on between China and the U.S. Last year, the imposition of the U.S. tariffs was supposed to strongly impact the Chinese economy and thus result in China making trade concessions resulting in a more favorable deal for the U.S. With the Chinese economy stabilizing, there is a less imperative need on China’s part to make as many concessions as there once was, and this helps to explain why the trade talks continue to drag on with no particular end in sight. | |
| HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: | |
- The New Zealand dollar is one of the few currencies to have weakened overnight on the back of weaker-than-expected Q1 GDP. GDP was expected to rise by 1.7% YoY but came in at 1.5%. Kiwi interest rates are much lower on the session causing the Kiwi to weaken sharply today.
- The U.S. posted a better-than-expected trade balance report for February with the deficit coming in at $49.4 billion (eight-month low) against expectations of a deficit of $53.4 billion. A combination of factors helped to contribute to the improvement. U.S. civilian plan exports surged, and there was a sharp decline in the trade deficit with China. Exports to China rose by $1.6 billion while imports fell by $1.5 billion bringing the total trade deficit with China to $30.1 billion.
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