Tuesday 13 October 2015

Chinese trade numbers disappoints again fuelling worries

Chinese trade data bucked the trend of good economic data numbers of late by coming in rather bleak in the face of slowing consumer demand. Exports were a tad better than previous months but it was import numbers that raised the alarm bells for many observers. A drop of 20.4% in imports from the same time last year does send out strong signals that there could be more worries to deal with before we turn the corner.

Because the Chinese economy is still classified as a developing nation even when you consider the amazing growth it has experienced, the need for machinery and equipment in the industrial process is still higher than those of their developed peers. A dip in imports could imply that manufacturing is not growing at the pace it once was increasing the fear of a much weaker economy ahead.

I believe that the effects of stimulus are starting to trickle through but not at a rate the markets are pricing in so a pullback in global indices wouldn't be a surprise to me. I think there's a tough road that lies ahead for the global economy with the recent Fed rate decision held off due to China but that cannot continue indefinitely. When rates finally do rise the pressure will begin to start building.
As a result of the news that has come out of China, commodity prices which had one of their best weeks in years began giving back some gains made up last week. Again emphasis must be placed on the fact that most commodity prices and producers have had a torrid time leading up to the bounce in prices. With no throwback materialising over that period it did create a potential for a massive short squeeze.

What today's new affirms to us is that there is a need for more evidence of a turnaround in the commodities sector if we are to see a proper recovery in these stocks. The short squeezes that occur merely provides an opportunity for commodity bears to hit prices down from a higher level. The only way to change this view is to be comfortable with the trend economic data has set that indicates things are on the mend.
In other news, SABMiller has finally accepted a buyout deal from AB Inbev that would see $104 billion being exchanged between the world's largest brewer and shareholders. Although the deal has been agreed in principle there are a number of regulatory hurdles to pass before such a deal can be concluded.

There is a distinct feeling that regulatory authorities will not budge on a decision to allow such a merger to go through, however in the deal between the two breweries, AB Inbev has agreed to pay SABMiller $3 billion should the deal fail to clear the hurdle.
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