China Market falls after downbeat trade data

Headline shares of the Mainland China equity market closed down on Monday, 14 January 2019, as risk aversion triggered after disappointing December trade data and warning of weaker trade growth this year due largely to external uncertainty. At closing bell, the benchmark Shanghai Composite Index fell 0.71%, or 18.07 points, to 2,535.77. The Shenzhen Composite Index, which tracks stocks on China's second exchange, slipped 0.73%, or 9.61 points, to 1,303.75. The blue-chip CSI300 index was down 0.87%, or 27 points, to 3,067.78.

China's exports to the world fell 4.4% in December from a year earlier, the biggest monthly drop in two years, pointing to further weakening in the world's second-largest economy. Imports also unexpectedly contracted, falling 7.6%, the biggest decline since July 2016. China's global trade volume rose last year but its surplus with the world fell 16.2% to $351.76 billion in 2018, as imports rose 15.8% while exports gained 9.9%. Much of the optimism built up last week following a round of mid-level trade talks appears to have evaporated.

At the same time, China's overall trade surplus with the U.S. hit a record in 2018, underscoring the political imperative to cut a deal ahead of a March 1 deadline after which U.S. President Donald Trump has threatened to impose additional tariffs on Chinese goods. The customs data showed that China's exports to the U.S. contracted in December 2018 although its overall trade surplus with the U.S. hit a record $323 billion in 2018. Exports to the U.S. rose 11.3% to $478.4 billion for the year despite punitive tariffs imposed by President Donald Trump in a fight over Chinese technology ambitions. The customs data showed imports of American goods rose just 0.7% in 2018 over 2017, reflecting the impact of Beijing's retaliatory tariffs and encouragement to importers to buy more from non-U.S. suppliers.

Chinese Vice Premier Liu He is slated to travel to the U.S. for further talks around the end of this month, with little progress seen so far on the tougher areas of the dispute such as China's treatment of intellectual property or support for state firms. The headwinds from trade comes at a time when policy makers are already grappling with decelerating consumption, falling factory sentiment, fears of producer deflation and a worsening employment outlook.

On top of trade data, investors weighed the latest arrest involving Huawei. The China telecommunications giant's chief financial officer had earlier made international headlines when entangled in a sanctions fraud case in Canada. Then last Friday, it emerged that sales director Wang Weijing was arrested in Poland on suspicion of espionage. Huawei swiftly moved to fire and distance itself from Wang. The latest arrest amplified concerns over increasing obstacles Huawei will face in conducting business in Europe, where many people associate the company's technology with China spying activities.

CURRENCY NEWS: China yuan eased against greenback on Monday, despite central bank set stronger mid-point rate, due to poor Chinese trade data. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.7560 per dollar, 349 basis points firmer than previous day's fix of 6.7909. In the spot market, the onshore yuan opened at 6.7500 per dollar and rose to a high of 6.7340, also the strongest since July 19, before the December trade data was announced. As of midday, the onshore spot yuan was changing hands at 6.7579, or 87 pips firmer than the previous late session close but 0.03 percent weaker than the midpoint. Last week, the yuan strengthened more than 1.5 percent against the greenback, its biggest weekly gain since July 2005, when Beijing took the Chinese currency off a fixed dollar peg and revalued it.

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