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Global trade pulls markets lower

The FTSE 100 has been pulling back today, following up on a three-day trend which has seen each rally sold into, a sign that the bullish sentiment is waning ahead of a likely rate hike.

A man looking up
Source: Bloomberg

The US dollar has continued to strengthen, in a trend which has now lasted three weeks, helped on its way by a particularly strong jobs report. While the story for the US dollar is very clear in the face of a December rate hike, markets waited for a response today to confirm that good news remains bad for equities. As earnings season comes to a close, the promise of further dollar strength means the next quarter will likely see continued weakness for many international firms.

Today’s OECD report saw global growth revised lower yet again. Initially pencilled in as 3.7%, 2015 growth has now been predicted as 2.9%, with the Chinese slowdown noted as a main determinant of economic slowing. Most worryingly for the OECD, global trade is only expected to grow by 2% this year, which has only happened five times in the past 50 years. These periods all coincided with financial market downturns. No doubt the Chinese slowdown is disproportionately responsible for reduced global trade data, yet it highlights the impact that this one country has in world economics.

Chinese trade is continuing to suffer, with imports down 18.8% and exports falling 6.9% in October. This week finds the focus return to the Asian powerhouse, where inflation, industrial production and fixed asset investments all hope to begin moving in the opposite direction. The fact that we saw very little initial negative movement within the markets show that this has become significantly priced in, and for many the focus is more upon European Central Bank easing and Federal Reserve tightening in December, rather than the continued Chinese slowdown.

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