Scoreboard: China bears

Wall Street closed in the red as concerns over the Chinese economy and events in Crimea continued to weigh.

Chinese economic concerns and lingering uncertainties on the Crimean peninsula weighed on markets last night. Sentiment wasn’t helped by the absence of any hard-hitting macro data either -- there wasn’t a lot of good news. Investors instead focussed on a run of bearish China news -- first corporate bond default, a plunge in exports, weakening iron ore prices, slowing (modestly) credit growth etc. China bears are in the ascendency.

Meanwhile, the Ukraine has partially mobilised 20,000 reservists and there is growing pressure to ignore or declare as illegal Crimea’s intended referendum this weekend. The Ukraine points to agreements that were made in the ‘90s for the country to give up its considerable nuclear arsenal in return for territorial guarantees. Russia in turn refers to the experience of Kosovo, where the International Court of Justice determined that international law did not prohibit unilateral declarations of independence.

Commodities were mixed overnight. Copper hit a four-year low, losing another 2.8 per cent overnight to be off 8.4 per cent over the last week. Silver lost a further 0.4 per cent, although gold was up smalls -- $6 -- to $1347. Crude too was mixed -- Brent rose 0.5 per cent ($108.35), while WTI fell 1.4 per cent to $99.72.

Global equities were generally weaker, although with more mixed results in Europe. The Dax for instance rose 0.5 per cent, contrasting a 0.5 per cent fall on the CaC and a 0.1 per cent fall on the FTSE100. US markets were in the red. The S&P500 closed 0.51 per cent lower at 1868, the Dow was down 0.41 per cent to 16,351 and the Nasdaq was off 0.63 per cent (4307). By sector, energy, basic materials and industrials were the key underperformers, although all sectors were in the red.

Forex saw the Australian dollar weaken but all of the damage occurred only in the last few hours where it has lost 80 pips since about 0300 AEDT. Currently the unit is at 0.8967 US cents. Elsewhere, we saw the euro little changed at 1.3861, the British pound is off about 15 pips to 1.6619, while the yen is otherwise at 102.95.

Rates were a little lower in the US. The 10-year Treasury yield slipped 2 bps to 2.764 per cent. The five-year yield is at 1.61 per cent and the two-year is at 0.38 per cent. Aussie futures rallied, the threes up three ticks to 97.045, while the tens are 2.5 ticks higher at 95.900.

Elsewhere, the governor of the People’s Bank of China said the central bank would remove controls on deposit rates within two years. On the data front, German exports surged 2.2 per cent in January, with imports rising more than 4 per cent. The current account surplus came in at €16.2 billion, down from €21.1bn. Still in Europe, UK industrial production rose by 0.1 per cent in January to be 3 per cent higher annually. Further, GDP was estimate to lift 0.8 per cent in February according to the NIESR. Over in the US, the NFIB small business optimism index fell to 91.4 in February from 94.1 in January. Wholesale sales then fell 1.9 per cent in January after a 0.1 per cent rise the month prior, and inventories rose 0.6 per cent.

In markets today the SPI points to a 0.6 per cent fall for our stocks. Data wise we see consumer confidence at 1030 AEDT for the domestic market, followed up by home loans at 1130 AEDT. Data abroad includes European industrial production, and it’s fairly light for the US -- mortgage applications and the monthly budget statement.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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