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Global Markets: China trade shock hits global stocks, commodities

Reuters  |  LONDON 

By Strohecker and Ritvik Carvalho

(Reuters) - Global stock markets and commodities took a hit on Monday after a shock contraction in Chinese trade pointed to deepening cracks in the world's second-largest economy and sparked fears of a sharper slowdown in global growth.

Data from showed imports fell 7.6 percent year-on-year in December while analysts had predicted a 5 percent rise. dropped 4.4 percent, confounding expectations for a 3 percent gain.

For an interactive version of the following chart, click here https://tmsnrt.rs/2SRopIf.

The data reinforced fears U.S. tariffs on Chinese goods were starting to hit China's cooling economy, while softening demand has been felt around the world with sales of goods ranging from iPhones to automobiles slowing, prompting profit warnings from among others.

Adding to the gloom were weak industrial output numbers from the euro zone, which posted their largest fall in nearly three years.

The index of Europe's leading 300 shares fell 0.9 percent by noon in Germany's DAX and France's CAC were down over half a percent and 0.9 percent respectively, with shares in European luxury goods companies and the automotive sector suffering some of the biggest declines.

The falls in followed hefty declines in where MSCI's broadest index of Asia-Pacific ex-shares lost around 1 percent from Friday's 1-1/2 month high - its biggest single-day percentage drop since Jan. 2. Chinese and Hong Kong shares suffered the worst hits.

"December's (China) trade data were soft, but the data for the preceding months were surprisingly strong and show to the US growing at a decent pace, which may reflect producers trying to front-run any future escalation in tariffs," wrote Neil Shearing, at in a note to clients.

U.S. futures showed no let-up on the horizon, with Nasdaq futures pointing to falls over 1 percent for tech stocks while industrials looked set to open 0.9 percent softer.

COMMODITIES SUFFER

The prospect of slowing global growth also roiled commodity markets, with slipping over 1 percent. Industrial metals copper and aluminium lost ground in and

Safe-haven trades benefited from the equity pullback with U.S. 10-year Treasury yields falling to as low as 2.6690 percent - their lowest level in a week - while gold prices gained.

The world's two largest economies have been in talks for months to try and resolve their bitter trade war, with no signs of substantial progress.

Some analysts expect China's latest data to provide impetus to to resolve the trade dispute with

Though analysts said even with the rising probability for both sides to reach an agreement, the tariff and trade disruption appears to have already rippled through the global economy.

"Regional trade growth appears to have slowed substantially after front-loading effect diminished," they said.

In light of the trade dispute, China's policymakers have already pledged to step up support this year, following a raft of measures in 2018 including fast tracking infrastructure projects and cuts in banks' reserve requirements and taxes.

In currency markets, the yuan gave up some recent gains in both onshore and offshore trading. The Chinese currency had recorded its best week in more than a decade last week.

However, this could change, said Tim Graf, at State Street.

"The weakness in the Chinese data is calling into question the recent strength of the renminbi," said Graf. "The downside for dollar/Chinese yuan is limited and that has implications for the euro and the Aussie dollar."

The dollar index as measured against a basket of currencies nudged 0.1 percent lower to 95.558. The Australian dollar and New Zealand dollar - both gauges of global risk appetite - were both last down 0.3 percent.

The euro was flat at $1.14710.

Britain's pound hit a seven-week high as made last-ditch efforts to garner lawmakers' support for her Brexit divorce deal, which looks almost certain to fail when it is put to a vote on Tuesday.

For the U.S. trading day, banks will be in sharp focus as they kick off the earnings season. Quarterly results from are due on Monday followed by JPMorgan Chase, Wells Fargo, and later this week.

Expectations are downbeat with profits for U.S. companies forecast to rise 6.4 percent, down from an Oct. 1 estimate of 10.2 percent and a big drop from 2018's tax cut-fuelled gain of more than 20 percent.

Investor attention was also on the shutdown, in its 24th day with no resolution in sight.

(Reporting by Strohecker, additional reporting by in and in London; Editing by and John Stonestreet)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, January 14 2019. 17:44 IST
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