Markets rise, but Chinese trade data proves worrying

Chinese trade data shows the continued decline of imports, raising fears of further slowing growth for global exporters. Meanwhile, oil price gains have little to do with OPEC, as markets rely on the US for direction.

• Housebuilders help FTSE 100 rise

• Chinese surplus growth has worrying underlying message

• Oil market gains unlikely to reflect OPEC action, with US production key

European markets are on the rise in early trade today, with the housing sector once again providing a boost to FTSE 100 trade. This week’s earnings from Barratt Developments, Persimmon and Bovis Homes have provided a more optimistic outlook for the sector, and with market expectations of a BoE rate cut growing there is reason to believe the sector may be able to weather this Brexit storm better than some had expected.

A sharp rise in the Chinese trade surplus has helped boost sentiment this morning, with the decline in exports easing somewhat. However, much of the surplus growth can be attributed to a lack of imports rather than any particularly impressive export figure, with a lack of domestic demand failing to significantly raise imports (-7.3%) following a sharp -8.5% decline in May. The trade war has certainly taken a toll on the Chinese economy, and today’s figures highlight why this US-China trade war has such a substantial contagion effect on global exporters. As long as we see Chinese imports suffer, we are likely to see the weak growth for the big exporting nations like Germany.

The IEA has said what the markets already knew; that the recent OPEC production limits do little to change the supply-demand dynamic that exists within the oil markets. With OPEC largely out of the game, markets are looking to US production and potential geo-political shocks as drivers of market direction. The recent decline in US stocks has certainly raised hopes that we will see production levels tail off after hitting record highs in May. Meanwhile, with Iran seeking retribution for the UK’s actions around Gibraltar, there is a distinct possibility that we could see a upside shock to prices from that perspective. That being said, in the absence of such shocks, US production is likely to
 remain a drag on prices, with any upside for crude largely attracting greater production from the dynamic US producers.