European Futures Shrug Off Weak China Export Data

European markets are poised to open moderately higher on Tuesday despite following a negative session in Asia overnight on the back of some disappointing trade figures from China.

China recorded a smaller trade surplus than expected in November on weaker than expected exports and a slower decline in imports. While the larger decline in exports is concerning, with weaker demand from abroad suggesting that the global slowdown is not abating, the imports data did offer cause for optimism. While the improvement may partially reflect last year’s sharp decline in commodity prices beginning to fall out of the annual comparison, it does also point to stronger domestic demand, a sign that fiscal and monetary stimulus measures are finally having the desired effect.

Revisions to its third quarter GDP data show that Japan avoided a technical recession in the third quarter as growth was revised up from -0.2% to 0.3%, driven by a sharp swing in business investment compared to the preliminary release. While it is encouraging that businesses are investing more than previously believed which may open the door to higher wages and higher prices going forward, and help the Bank of Japan hits its 2% target, these numbers are far from convincing and suggest that more stimulus, both fiscal and monetary, is needed if Abenomics is to achieve its goal.

WTI and Brent crude prices both fell to their lowest levels since February 2009 on Monday and could face further declines in the coming months after OPEC failed to reach an agreement on production cuts at its semi-annual meeting last week. What’re more, no ceiling was mentioned which suggests the group couldn’t agree on how best to accommodate the return of Iranian oil to the markets now that sanctions have been lifted. This doesn’t bode well for oil producers after a year in which the world has been flooded with oil and storage containers are now nearing capacity, leaving plenty of scope for further sharp declines in oil prices.

Once again today, we do have some notable data coming from the US but as is likely to be the case for most of this week, I expect investors to have one eye on next week’s Federal Reserve meeting and therefore position themselves accordingly. This morning we’ve got manufacturing and industrial production figures from the U.K., which are expected to highlight the ongoing challenges facing the sector. Fortunately, manufacturing does only account for around 9% of U.K. GDP and so it shouldn’t weigh too heavily on overall economic activity. That said, the Bank of England is clearly concerned about the impact the strong pound is having, hence its decision to hold off on raising interest rates and send a quite dovish message to the markets despite the economy as a whole performing rather well.

We’ll also get the revised third quarter GDP reading for the eurozone this morning which is expected to be unchanged from the previous reading of 0.3%. Sluggish growth is expected to continue in the euro area next year, not helped by the lacklustre efforts from the ECB last week to provide additional stimulus that is so badly required in the region.

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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.