Risk Aversion Looms As Chinese Data Disappoints

Risk aversion kicked into full force at the start of the week as data out of China shockingly disappointed the global market.  Global stock indices were down across the board, and at the time of writing this article, DJIA is down by over 100 points while S&P500 is down 10 points.  Let’s take a closer look at the news out of China:

(CN) CHINA FEB TRADE BALANCE: -$23.0B V +$14.5BE (first trade deficit in 11 months; largest deficit in 2 years; 2nd largest deficit on record)

  • Exports Y/Y: -18.1% v +7.6%e
  • Imports Y/Y: +10.1% v 7.8%e
  • Exports in CNY: -20.4% y/y
  • Imports in CNY: +7.0% y/y
  • Exports to US: -11.3% v +7.7% prior
  • Exports to EU: -14.4% v +15.6% prior
  • Exports to Japan: -11% v +13.1% prior
  • Feb Iron Ore imports: 61.2M tons v 86.8M tons m/m, +8.5% y/y
  • Feb Copper, Product imports: 380K tons v 536K tons m/m, +41.2% y/y
  • Feb Crude Oil imports: 23.1M tons v 28.2M tons m/m, +11% y/y

(CN) CHINA FEB CONSUMER PRICE INDEX (CPI) Y/Y: 2.0% V 2.1%E (13-month low);

  • CPI M/M: 0.5% v 1.0% prior
  • Food CPI y/y: 2.7% v 3.7% prior
  • Non-food CPI y/y: 1.6% v 1.9% prior

Note: China 2014 CPI target is 3.5%

Interestingly, the last  global risk aversion event that ended with the USDJPY at the lower end of 100.00 back in January was also originated from China.  With the Chinese economy as the second largest economy in the world, a weak exports figure represents a much wider implication than just China, especially considering that the primary reason for declines in exports are declines in global demands; however, responses from Chinese authorities seemed to point to the Chinese New Lunar Year holiday as the reason for the declines, but with a Trade Balance deficit of $23.0 Billion, or the largest deficit in 2 years, it’s hard to chalk it up just on seasonal factors.

Furthermore, with the CPI dropping to a 13-month lows, China could be looking at easing alternatives if it were to reach the 3.5% CPI target by the end of 2014.  At any rate, this data may look risk averse for the time being, but future responses from China could turn market sentiment on a dime, especially if PBoC were to cut rates or bank reserve requirements.

I would lean towards more risk averse market for the short-term, therefore I will trade primarily in the direction of the USD, JPY, and perhaps CHF.  AUD and GBP are likely to face major corrections, especially considering RBA’s response on the AUDUSD exchange rates (“0.90 is high” – comments from RBA Governor) and the recent exaggerated rise in GBP, which just begs correction.






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