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The latest trade figures coming out of China are opposite to analysts predictions and has given a red signal on the global economic condition.
The ongoing trade war between the U.S. and China is causing a major impact on the global economy. The latest trade data from China has further fueled the possibilities of a global recession. The opening of stock market indices at Monday morning witnessed a sharp downfall. All of the three indices including Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 Index lost between 0.5 to nearly 1% in the early morning.
However, the poor trade figures from China has caused ripples across the European and Asian markets as well! The FTSEurofirst 300 Index (FTEU3) which is Europe’s leading stock index also lost 0.7%. Similarly, the MSCI World Index of the Asian market also lost 1%.
Analysts’ Predictions Fall Flat
The latest trade data [resented by China shows an even worse outcome than what the analysts predicted. According to the trade data, China’s imports have dropped by 7.6% on year-to-year. Despite the ongoing trade friction between the U.S. and China, analysts were hoping for a 5% rise. Similarly, the exports fell by 4.4% whereas the analysts expected a 3% rise. These stats adds major concerns to China’s economic slowdown as well as global trade.
“Weaker than expected trade figures are immediately weighing on commodity and equity markets and associated currency baskets.”
On the other hand, Citigroup analyst is predicting a further meltdown in China’s trade figures. The Citi analysts said: “We believe trade growth next year will slow significantly on huge uncertainty and high base.”
Although the U.S. President claims that everything is fine with China, and that the recently held trade talks went well, Citi says:
“Significant uncertainty remains as to whether there could be a ‘deal’ after March 1.”
Quarterly Earnings Report Can Provide a Breather
On Monday, January 14, the earnings season has finally kicked off with major banks reporting their results. Citigroup Inc. has released its quarterly results while producing above expected profits but still falling short on revenue estimates. Ahead this week, other banks like Wells Fargo, JPMorgan Chase, and Goldman Sachs will disclose their quarterly results.
At the press time, Citigroup Inc. share is 4% up trading at $59.09. Other mentioned banks are also showing positive movement in expectation of better quarterly results. Credit Suisse says:
“Expectations for earnings growth into 2019/2020 remain reasonable, assuming sustained positive GDP growth.”
Market Strategists’ Views
In a word with MarketWatch, Zhiwei Ren, portfolio manager at Penn Mutual Asset Management told: “We are hitting strong resistance near the 2,600-2,630 level” for the S&P 500. Ren further added: “I was surprised by the velocity of the rally since December, and I’m skeptical that this rally” has still much momentum left. A lot of uncertainty exists led by the U.S.-China trade war resulting in slower growth.
Jasper Lawler, head of research at London Capital Group said:
“Analysts have been backpedaling earnings expectations faster than usual in the run-up to the Q4 releases. Apple’s high-profile warning may have unduly lowered the bar for other firms.”
He further added: “Expect roughly 10% earnings growth, lower than last quarter but still very strong, albeit Q4 looks likely to be a bit patchier than the across-the-board wins we had in Q3. The effect of tax cuts will start to seen annualizing out”.