Chinese Trade Surplus Raises Eyebrows

Weekly Report - 17/01/2016

Improvements in Exports and Imports Send the December Surplus Skywards


China is begin to see modest improvements in the economy after annualized import and export data managed to show a more modest contraction than previously estimated thanks in large part to the accommodative policy measures implemented by the Central Bank.  Regional financial markets remained volatile amid the Yuan revaluation that has kept traders on edge.

Weekly Review

China’s economy has been the epicenter of recent market turmoil with concerns about the outlook feeding growing negative sentiment across global asset markets.  Imports and exports managed to rebound modestly on an annualized basis, but remain firmly in contractionary territory as the impact of policy changes is felt in the export dependent economy.  Upcoming data on GDP is likely to confirm the deceleration in Chinese growth which has fallen to the slowest pace in nearly 25 years.  Global equities capped off one of their worst weeks in recent memory with the Nasdaq Composite hitting the lowest level in 14-months as concerns about valuations grow.  Outside indices, crude oil remained a major source of volatility in financial markets, with both the Brent and West Texas Intermediate benchmarks closing below $30 per barrel for the first time since 2003 amid rapidly vanishing storage space.  In other news, the Bank of England announced no changes to interest rate policy, leaving the key rate on hold at 0.50% while the Pound continues to tumble versus peers, with GBPUSD falling to the lowest since 2010.


The Week Ahead

The key events to watch in the coming week kick off with gross domestic product figures from China for the fourth quarter and the 2015 fiscal year.  Expectations currently show the figures decelerating additionally with annualized growth estimated at 6.80% versus 6.90% in the prior reading.  Quarterly GDP is forecasted to see 1.70% expansion versus 1.80% in the third quarter.  Other major global events to monitor include interest rate decisions and inflation data from leading economies.  The upcoming policy decision from the European Central Bank marks the first decision since the Central Bank opted to take the deposit rate deeper into negative territory.  Consensus estimates show no imminent changes to monetary policy or interest rates.  The Bank of Canada is also set to announce rates, with expectations currently showing estimates of 0.50% however, there is a rising possibility that rates will be cut an additional 25 basis points to 0.25%.  Consumer price index readings are due from across the globe, starting in the UK, Euro Area and New Zealand on Tuesday, followed by United States and Canada later in the week.


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