China’s hopes of reopening offset weak trade data – Daily Market Brief, December 7, 2022

Weak China trade data highlights the impact of the zero-Covid measures on the world’s second-largest economy. However, the hit to sentiment is partially offset by China announcing an easing of Covid restrictions.

·         DAX falls despite German industrial production beating forecasts

·         Eurozone GDP is due to confirm 0.2% growth, EUR/USD struggles below 1.05

·         BoC is due to announce its interest rate decision. A 50 bps hike is expected

Stocks on Wall Street closed firmly lower on Tuesday as banks sounded cautious, raising recession concerns. Several major Wall Street banks warned that the US economy would likely tip into recession next year, especially if inflation remains elevated and interest rates keep rising. Bank of America’s chief executive predicted three-quarters of mild recession in 2023. Meanwhile, Goldman Sachs warned of job cuts saying that the looming recession will hit hiring.

Chinese trade data

China’s trade data was weaker than expected and highlighted the impact that the economically damaging zero-COVID measures have had on the economy of China. China reported its imports and exports fell in November; exports sank -8.7% YoY, down from -0.3% in October as global demand weakened. Meanwhile, imports fell -10.9%, down from -0.7% in October, as antivirus controls hurt domestic demand.

The weak data is partly offset by optimism as China announces an easing of quarantine restrictions and mass testing in a nationwide Covid move. As the yuan strengthens, USD/CNH trades modestly lower at 0.6975. However, the Hang Seng also trades over 1% lower

DAX

Europe is pointing to a mixed start. The DAX is set to fall for a third straight session, pulling away from the six-month high of almost 15000 reached earlier this week. Global recession fears drag on sentiment; even stronger than forecast German industrial production is failing to boost sentiment towards the index. Industrial output slipped 0.1% MoM in October, ahead of the -0.5% decline forecast. The data comes after factory orders unexpectedly rose 0.8% in October after falling 4% in September, suggesting that the looming German recession could be milder than initially feared.

Eurozone GDP

Looking ahead, Eurozone Q3 GDP data is expected to confirm 0.2% growth QoQ, down from 0.8% in Q2, but still avoiding contraction. The eurozone economy is forecasted to contract in the current quarter and Q1 of 2023 before recovering in Q2 next year.

EUR/USD trades -0.1% at the time of writing on USD strength as recent US data suggests that the Federal Reserve could keep raising interest rates aggressively.

BoC

The BoC is due to announce its interest rate decision at 10 am ET. The central bank is expected to raise interest rates by 50 basis points. However, the market is still pricing in a 27% probability that the central bank could opt for a smaller 25 basis point rate hike. So far, this hiking cycle, the BoC has raised interest rates by 350 basis points. A 50 bps increase would take the benchmark rate to 4.25%. The outlook for rates remains unclear; there has been little discussion surrounding the expected terminal rate, which some forecast could be 4.25%. With GDP and the labour market still strong and inflation holding steady at 6.9%, rates could still push higher.

USD/CAD trades at a monthly high of 1.3650 on USD strength as the loonie tracks oil prices lower.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

Sources: Bloomberg, CNBC, Reuters 

Original article provided by Trading Writers

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