Chinese Trade Data Further Dents Growth Outlook

European futures are pointing to another positive start on Tuesday in what is likely to be a livelier day as US and Canadian investors return from the Labor Day bank holiday.

There isn’t a huge amount of important economic data due out today but there are certainly a few to monitor. Revised eurozone GDP data is due out this morning and is expected to be unrevised at 0.3% on the quarter and 1.2% on the year. This will be accompanied by trade data from Germany and France and later on from US labour market conditions and consumer credit data.

Chinese trade data added to the doom and gloom surrounding the world’s second largest economy over night. While the overall trade surplus was just shy of its record, the underlying figures were very disappointing and pointed to slowing demand, both domestically and from abroad.

Chinese exports fell by 5.5% last month which was a little better than expected and a slight improvement on last month, but still represents falling demand for Chinese goods.

China Exports

Imports were even worse as falling commodity prices and domestic demand brought about a 13.8% decline.

China Imports

There have been numerous cases of this already this year and it clearly shows that the country is having difficulties in its attempts to transition from an export-driven economy to a consumer-driven one. The consumer just isn’t filling the void which is going to result in slower growth and challenging conditions for the government and central bank.

Authorities in China have been busy again over the last few days in an attempt to bring some stability to its markets. A statement from the Shanghai Stock Exchange on Monday announced plans for a circuit breaker that would halt trading for 30 minutes if the CSI300 index fell or rose by 5% from its previous closing level. If this failed to stabilize it, it would be frozen for the rest of the day at 7%. The massive moves in Chinese stock markets has been partially attributed to panic selling and over-excitement from the large number of retail investors actively trading them and the idea is that this will help manage that.

This statement from the stock exchange came after the government announced that income taxes on dividends for investments held longer than a year will be removed while those on investments held between a month and a year will be cut in half. The move is intended to discourage short term speculation on the markets that has been behind the huge moves in the markets and created so much panic and fear.

Revised second quarter GDP data from Japan showed the economy shrank by only 1.2% on an annualized basis, from 1.6% in the preliminary reading. The improvement was driven by a build-up in inventories which doesn’t bode well for the coming quarters, especially as capital expenditure fell more than expected. Meanwhile, Prime Minister Shinzo Abe won a second term as head of the Liberal Democrat Party after running unopposed.

Economic Calendar

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.