China’s weak trade data yesterday served as a reminder that tepid global growth remains a constraint on both corporate profits and interest rates. However, the Australian market has opened on a relatively firm note this morning. It significantly underperformed US markets yesterday and a turnaround in bond yields may also help support stocks this morning.
Yesterday’s trade data has put China’s economic growth back on the market radar after several months of stabilised growth. Weak export growth in September unwinds the surprisingly good performance in August. This leaves a clear trend of tepid growth in exports over the past 6 months and comes despite the Yuan devaluing by more than 6% against its trade weighted index this year.
China’s struggle to achieve export growth is a reflection of weak global trade. This won’t prevent the Fed from increasing interest rates this year. However, it will be a handbrake on the pace of monetary tightening next year. The Fed will need to tread a balance between responding to an improving domestic economy and pushing the Dollar too high. This logic led to a pause in the recent advance in both bond yields and the US Dollar in overnight markets. Australian bond yields have fallen further in early trade this morning, suggesting a correction against the recent upward move in rates is now underway.
Copper was a casualty of the Chinese trade data. While China’s copper imports are up for the year to date, they fell significantly in September. Recent moves to cool the housing markets are also likely to crimp Chinese demand for copper and other resources in coming months. Despite a firm tone for the wider market this morning, resource stocks are likely to encounter selling pressure.