Chinese data keeps stocks under the cosh

Stock markets finally succumbed to the poor economic indicators from China, and the commodity industry has been hit the hardest.

Chinese data graph
Source: Bloomberg

For too long traders were ignoring the poor numbers out of China as speculation of a stimulus package kept doing the rounds, and today it finally caught up with them.

The disappointing trade figures from Beijing overnight triggered a massive sell-off in commodities and commodity related stocks. Metals and mining firms witnessed a major bounce back this year but today’s data from China was the perfect excuse to exit their long positions.

Investors are still viewing the economic slowdown in China as a clue that Beijing might try and boost economic growth, as speculator’s short positions on high-grade copper are at their lowest level for the 2016.

Beijing has a history of launching stimulus packages whenever they feel it is warranted, and for that reason investors who are still long are holding out for additional easing. The European Central Bank meeting is getting close, and two down days in a row may attract some buyers who feel that Mario Draghi will fulfill his promise of more stimulus.

Oil squeezed higher during the day, only to swing back into negative territory and the big energy firms are weighing on the equity benchmarks. Short interest on Exxon is up 10% year-to-date and short positions on Chevron are at a five-month high.

The mega mining companies are in the same boat, as short positions have climbed by 32% in 2016 on Freeport-McMoRan Copper & Gold. Natural resource companies have formed the foundation of the rally that started nearly one month ago, and their move to the upside since then has been accelerated by the vast amount of short covering, but whenever there is a downward move in the market it is those shares which suffer the most. 

FTSE risers and fallers (as of 4.15pm)

Company % change Index points
GlaxoSmithKline +1.56 +4.07
AstraZeneca +0.93 +1.84
Burberry Group +6.35 +1.5
National Grid +0.91 +1.26
Tesco +1.67 +1.01

 

Company % change Index points
Glencore -18.1 -14.05
Rio Tinto -9.54 -10.23
BP -3.36 -8.74
BHP Billiton -8.68 -6.41
Lloyds -2.9 -5.26


The night ahead

Economic data:

11.30pm – Australia Westpac confidence index (March): it is tipped to fall from 101.3 to 100.8.

The day ahead

Economic data:

9.30am – UK manufacturing production (January) and industrial production (January):  manufacturing production: MoM expected 0.2%, prior -0.2%. YoY expected 0.6%, prior -1.7%. industrial production: MoM expected 0.2%, prior -1.1%, YoY expected -0.3%, prior -0.4%

3pm – UK NIESR GDP estimate (three months, February): prior 0.4%.

3pm - Bank of Canada interest rate decision and statement. Rates are tipped to remain at 0.5%.

3.30pm – US oil inventories: stockpiles are tipped to fall to 0.8 million barrels from 10.4 million barrels. 

8pm – Reserve Bank of New Zealand interest rate decision and statement. Rates are anticipated to remain at 2.5%.

Corporate reporting:

UK: The Restaurant Group, Prudential, G4S, Hochschild Mining, Lookers

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.