As China trade disappoints, Asia’s stock rally goes up in smoke

The nascent bull case for Asia equities that emerged in recent trading is starting to look shaky.

While Japan is closed for a holiday, key equity markets retreated across the rest of the region, led by declines in Hong Kong and Shenzhen after China released disappointing December trade data and warned of weaker trade growth this year due largely to external uncertainty. It didn’t help that the US government shutdown is showing no sign of ending and S&P 500 Index futures fell as much as 0.9%.

The MSCI Asia Pacific ex-Japan Index fell 0.9% as of 5:05 p.m. in Singapore, the most since the first day of trading this year, as Taiwan, South Korea and other markets also declined. Hong Kong’s Hang Seng Index dropped as much as 1.8% to halt a six-day rally, while the Shanghai Shenzhen CSI 300 Index fell 0.9% and Shanghai Composite lost 0.7%.

“The signals from Friday were suggesting that we were nearing peak short-term optimism, even with the bump in sentiment from the Fed,” said Stephen Innes, head of trading for Asia Pacific at Oanda Corp., in a note to clients. “China’s weaker-than-expected 2018 trade data has seen the China equity market dive lower. Then sentiment went deeper into the tank on the release of China December trade data, which missed the mark badly.”

With this latest set of data, the damage of the US-China trade war is clear: Chinese exports in dollar terms fell 4.4% in December from a year earlier, while imports dropped 7.6% both the worst results since 2016. Much of the optimism built up last week following a round of mid-level trade talks appears to have evaporated.

“Such showings may actually be compelling evidence for policy makers to push harder for resolution in the US-China trade negotiation and hasten stimulus release in China,” said Jingyi Pan, a market strategist at IG Asia Pte in Singapore. “Broadly, concerns circle growth, with the anxieties over Fed mispolicy taking a backseat at present.”

The quick snap back in stocks Monday reinforces just how fragile investor sentiment is at the moment. Even a surge in China’s trade balance was bad news given the tensions, as it may strengthen US resolve to get the Asian nation to buy more American goods, said Wes Goodman with Bloomberg Markets Live.

But there’s more coming, and with a busy week for both macro news and corporate earnings, there will be more for investors to ponder. In the UK, the Brexit saga enters yet another crucial stage as Theresa May’s agreement is facing almost certain defeat in the House of Commons Tuesday, promising more potential uncertainty. And in the US, the government shutdown drags on with no end in sight amid an impasse over funding for a border wall with Mexico.

Meanwhile, some of the world’s biggest banks are releasing results, including Citigroup, JPMorgan Chase & Co., Bank of America, Wells Fargo, Morgan Stanley and Goldman Sachs Group, Tech giants Netflix and Taiwan Semiconductor Manufacturing results are also on deck.

And in India, weak industrial production has prompted the central bank to lower its economic growth outlook just as the earnings seasons has started with disappointing results from Tata Consultancy Services Ltd. and Infosys The nation’s S&P BSE Sensex Index is down for a third day.

Buckle up.

Stock-Market Summary

Hong Kong’s Hang Seng Index down 1.4%; Hang Seng China Enterprises down 1.6%; Shanghai Composite down 0.7% Taiwan’s Taiex index down 0.5% South Korea’s Kospi index down 0.5%; Kospi 200 down 0.8% Australia’s S&P/ASX 200 little changed; New Zealand’s S&P/NZX 50 little changed India’s S&P BSE Sensex Index down 0.5%; NSE Nifty 50 down 0.6% Singapore’s Straits Times Index down 0.6%; Malaysia’s KLCI down 0.4%; Philippine Stock Exchange up 1.5%; Jakarta Composite down 0.4%; Thailand’s SET down 0.9%; Vietnam’s VN Index little changed

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