China Data Reminds Traders of its Risk Influence, 3Q GDP Next Week
- Chinese trade figures posted an unexpected drop in the nation's surplus and particularly a 10% drop in exports
- As the world's second largest economy, China's health represents a particularly acute concern for the global markets
- Recalling the IMF's warnings for Chinese GDP and Fed's timidness on global troubles, record USD/CNH raises concern
The market-plunge that took place in August of last year was one of the widest and most intense moves the global financial system has witnessed since the Great Financial Crisis (GFC). And, its intensity was in no small part motivated by a rise in fear related to China's health. The supranational organizations (IMF, World Bank, others) voiced concerns for the country's potential influence over the global economy. For the world's largest central banks, the ill winds would curb the Fed's ambitions for tightening rates and provide further justification for the ECB and BoJ to extend their accommodation. China's troubles have not miraculously disappeared, its dedicated headline space just shrunk as more pressing topics crowded it out.
However, we are reminded of this key player's risks and connections pretty regularly. This past session, the August Chinese trade figures crossed the wires with a remarkably weak reading. Against expectations of a climb in the surplus to $53 billion, the trade figure instead dropped sharply to $42 billion. A 1.9 percent drop in imports and more severe 10 percent tumble in exports revived economic concerns that were waiting just beneath the surface. On the back of the IMF's unfavorable forecasts for a 6.6 percent 2016 GDP and 6.2 percent in 2017 along with frequent stories about the wall of nonperforming loans in the country, we are reminded that this is still a risk to the global landscape.
Where China looms as a potential destabilizing factor, its true weight has only been felt when financial pressure has forced its influence to the forefront. The August 2015 tumble in global risks assets found substantial relation to the sudden shift in Yuan pricing and subsequent drop in the currency announced on August 11. A subsequent swell in December 2015 and into January 2016 spurred fear that a capital flight was underway, motivating efforts by Chinese officials to intervene and bolster the currency. Once again, the USD/CNH (and USD/CNY) exchange rate are pushing new highs. Risk trends are trembling globally and Chinese 3Q GDP is ahead. Will China return as a critical sentiment spark for global investors once again?