Asian shares tumble after surprise contraction in Chinese exports

Sydney — Asian shares and US stock futures skidded on Monday after a shock contraction in Chinese exports pointed to deepening cracks in the world’s second-biggest economy and raised the fear of a sharper slowdown in global growth and corporate profits.

The latest data from China showed imports fell 7.6% year-on-year in December when analysts had predicted a 5% rise while exports unexpectedly dropped 4.4%, confounding the expectation for a 3% gain.

The disappointing numbers reinforced the fear US tariffs on Chinese goods were putting a big strain on China’s already cooling economy.

The Australian dollar, a key gauge of global risk sentiment and a liquid proxy for the Chinese yuan, toppled from Friday’s one-month peak of $0.7235 to $0.7186 after the data.

MSCI’s broadest index of Asia-Pacific shares outside Japan extended losses to notch a 1% decline from Friday’s one-and-a-half-month top, with Chinese and Hong Kong shares the biggest losers.

Liquidity was generally expected to be light during Asian hours as Japan was on public holiday.

Chinese shares were in the red, with the blue-chip index down 0.8%. Hong Kong’s Hang Seng index stumbled 1.4% while Australian shares eased 0.2% after starting firm.

E-minis for the S&P 500 declined 0.8%, in an indication of heightened risk aversion. “The data was very weak and it just adds to the incentives for the Chinese side to strike a trade deal with the US in the coming weeks,” said Ray Attrill, forex strategist at National Australia Bank.

“You could argue that the worse the numbers are the more incentive it provides to resolve the dispute.”

Beijing and Washington have been in talks for months now to try and resolve their bitter trade war, with no signs so far of any substantial progress in negotiations.

“It also amplifies the extent to which they [Chinese policymakers] have to provide stimulus for the domestic economy,” Attrill said.

In the wake 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.

Dark clouds

On the earnings front, US banks are in sharp focus with quarterly results from Citigroup due Monday followed by JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley later in the week.

Expectations are dour with profits for US companies forecast to rise 6.4%, down from an October 1 estimate of 10.2% and a big drop from 2018’s tax-cut-fuelled gain of more than 20%.

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

Further clouding the outlook, Britain faces a hugely uncertain path with a vote for a deal for its exit from the EU due in the UK parliament on Tuesday.

All these factors were at play last week when the main US indices ended Friday little changed as investors reset positions ahead of key risk events.

In currencies, the euro was subdued as it hit key technical levels following data from Italy on Friday that showed the eurozone’s third-largest economy was at risk of recession.

The single currency was last at $1.1466.

The dollar’s index, which measures the greenback against a basket of major currencies, edged 0.1% lower to 95.57 after two consecutive days of gains.

In commodities, oil prices extended losses from Friday as investors worried about a global slowdown.

US crude fell 59c to $51 while Brent eased 65 cents to $59.83.

Gold gained to inch towards a recent seven-month high of $1,298.42/oz.

Reuters