Poor Chinese trade sees markets fall

Global shares lost momentum yesterday, falling for the first time in five days after weak Chinese trade data, though declines were limited by expectations policymakers could act to shore up the world’s economies.

The markets’ recent rally has been underpinned by comments by ECB President Mario Draghi two weeks ago that the central bank was “ready to do whatever it takes to preserve the euro”, raising hopes of heavy bond buying to aid Spain and Italy.

A lower-than-expected reading in China’s July exports yesterday, however, soured the mood. In addition, new bank loans in China were at a 10-month low, suggesting pro-growth policies have been slow to gain traction and that more urgent action may be needed.

The weakness in exports was in part due to slower demand from Europe.

“The data was not bad, it was horrendous,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

“China’s export problem is an external problem and it has to do with Europe,” he added. “After these numbers, investors may want to see [stimulus] activity fairly quickly, especially from the ECB.”

Some economists said the Chinese central bank could move as early as this weekend to ease policy.

European and US stocks were modestly weaker shortly after Wall Street’s opening bell. The data also sent the euro tumbling to hit a one-week low.

“There was a hope that the stimulus that has been put in place would start to drive things in the third quarter, but there is nothing in these data that suggests the (Chinese) economy is really picking up,” said Adrian Foster at Rabobank.

Next week, second-quarter GDP data is expected to show the eurozone economy contracted.

Until details about ECB’s bond purchasing plans emerge investors will be wary. The euro fell to $1.2249, down 0.5%.

“The euro is working its way through another small corrective phase within a massive, long-term downshift,” said Richard Hastings, at Global Hunter Securities.

Reuters