China data adds to ongoing concerns

Global Markets

The markets are once again waking up to further concerns over the ongoing decline in economic momentum for the Chinese economy following the release of further China economic data overnight. The China trade data surprised some when it showed that exports declined less than expected, however there was a dramatic decline in imports at 20%. The astonishing drop in imports shows that China is already importing far less from overseas, and further confirms to market participants that it is those economies which are reliant on exports to China that will suffer the fall-out from a decline in China trade with economic momentum in the major economy definitely slowing down. With the trade data continuing to outline further economic weakness in China, anxiety will be high ahead of the latest GDP data from China which is scheduled for release next week. I personally believe that the GDP report will confirm that economic growth has fallen below the government target at 7%.

Momentum in the equity markets is starting to lose steam, with all major European futures other than the DAX closing in the red to begin trading for the week. There are still elevated risks when it comes to the health of the European economy and it is not by any means confirmed that the European Central Bank (ECB) are going to unleash further stimulus to reinvigorate the economy. This means that there are still risks for further losses as the trading week continues.

Even the momentum in the American markets is beginning to look a little subdued and despite investors being continually confused by the lack of clarity on the timing of a probable US interest rate rise, the US economy is still performing leaps and bounds stronger than its peers. One reason why the American markets might be looking a little subdued at the beginning of the week is because corporate earnings are scheduled for release in the United States, which could shed more light on whether the stronger USD is weighing on growth.

Gold jumps further as USD weakness continues

The USD is continuing to receive a pounding throughout the currency markets as traders remain determined to price US interest rate expectations into 2016. While Federal Reserve members are still publically refusing to rule out a US interest rates rise for 2015, the FOMC minutes last week largely failed to provide confidence in the USD bulls. All the release really expressed was a continuation of what the central bank has been repeating throughout the 2015 with this being their intention to begin raising interest rates later this year, but there is still confusion and a complete lack of clarity on the timing for a move.

Expectations of a US interest rate rise for 2015 are truly crumbling each passing week with this providing encouragement for Gold traders. Gold has now rallied by nearly $70 since the beginning of the month and the yellow metal can continue to climb higher. There is still potential for the USD to weaken even further, which makes me positive that Gold can begin looking towards $1200 if these US interest rate expectations continue to be pushed back.

WTI snaps back gains

WTI oil suffered from an aggressive round of profit-taking to begin the week with the commodity dropping over $3 since hitting a near-three month high on Friday afternoon. We have previously seen that any rally in the oil markets can fall over like a house of cards at any time and bearing in mind that the fundamentals remain unchanged, it’s not that surprising to see that WTI was unable to stay above $50 for long.

Buyers received encouragement from reports that the repeatedly mentioned oversupply in the markets might have already peaked, but I don’t think that WTI prices currently take into account that there are elevated global economic concerns at present. These concerns over the global economy are probably going to lead to anxieties that there is going to be less demand for WTI, and this could make prices remain depressed even if fears over the repeatedly mentioned oversupply are easing.

The reversal of gains in WTI is also going to reduce optimism that the Malaysian Ringgit and Indonesian Rupiah might turn the corner after both economies suffered aggressive currency weakness over the past couple of months. With Malaysia and Indonesia both being commodity exporters, any losses in WTI would likely lead to an abrupt end in momentum after unexpectedly recovering some losses late last week.