While you were sleeping: China sinks stocks, metals

Wednesday 9th March 2016

Equities on both sides of the Atlantic moved lower after worse-than-expected trade data renewed concerns about China’s economy.

A report showed China posted a 25.4 percent drop in exports in US dollar terms last month compared to the year-earlier month, the largest in six years, following an 11.2 percent decline in January. Imports fell 13.8 percent in February, after an 18.8 percent slide in January.

The fresh worries about China’s economic recovery also sent prices of base metals, including copper and zinc, lower.

Indeed, the International Monetary Fund warned that the risk of “economic derailment” had increased.

“Global economic recovery continues, but we are clearly at a delicate juncture, where risk of economic derailment has grown," David Lipton, the IMF’s First Deputy Managing Director, told the National Association for Business Economics in Washington.

“Again, I think that at the recent G20 meetings in China there was broad recognition of these risks and priorities,” Lipton said. “Now is the time to decisively support economic activity and put the global economy on a sounder footing.”

Wall Street declined. In 12.44pm New York trading, the Dow Jones Industrial Average fell 0.3 percent, while the Nasdaq Composite Index shed 0.5 percent. In 12.28pm trading, the Standard & Poor’s 500 Index declined 0.5 percent.

Declines in shares of Caterpillar and those of DuPont, last down 3 percent and 2.6 percent respectively, led the drop in the Dow.

“We are still in the process where we’re trying to find the bottom and I don’t think we are there yet,” Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf, Germany, told Bloomberg. “There had been, with the recent rebound, some optimism that we were out of the woods. The Chinese trade data is a reminder that the path for the business cycle ahead is pretty rocky and bumpy.”

In Europe, the Stoxx 600 Index finished the session with a 1 percent decrease from the previous close, led by a drop in mining stocks. The UK’s FTSE 100 Index, France’s CAC 40 Index, and Germany’s DAX Index all ended the day with a slide of 0.9 percent from the previous close.

Oil prices also declined amid concern that an agreement about curtailing production between major producers might prove tough to negotiate. Kuwait said it would freeze output only if all major producers including Iran agreed to participate.

Meanwhile, Goldman Sachs warned the recent rally was unsustainable.

Rising oil prices “simply are not sustainable in the current environment”, Reuters reported, citing the Goldman Sachs report.

The energy market "needs lower prices" to keep US shale producers from ramping up output, Goldman said in the report, according to Reuters. Otherwise, “an oil price rally will prove self-defeating, as it did last spring.”

BusinessDesk.co.nz

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