\n\tBy Greg Peel<\/p>\n
\n\tThe Dow closed down 40 points or 0.4% while the S&P lost 0.3% to 1203 and the Nasdaq<\/span> gained 0.6%.<\/p>\n \n\tYesterday China released its September trade data, which saw both export and import growth numbers falling below expectations. Analysts had forecast exports to have grown by 20.7% in the month over last September, and imports by 24.5%. Results of 17.1% and 20.9% were thus disappointing compared to equivalent August results of 24.5% and 30.2%.<\/p>\n \n\tThe upshot is China posted a trade surplus in September of US$14.5bn<\/span> compared to US$17.8bn<\/span> in August and US$31.5bn<\/span> in July. While the surplus reduction trend is encouraging from the point of view of reducing the global imbalance between emerging market surplus and developed market deficit, the apparent slowing of the Chinese economy is not encouraging at a time the developed world is staring at potential recession.<\/p>\n \n\tBut are we really that surprised? Europe is China's biggest export market and it is clearly heading into recession. The reduction in export demand must flow through to a reduction in import demand. China may be able to rely on its domestic economic growth to provide a disconnect with problems in the developed world, but it is not totally immune from those problems. The Shanghai stock index is down 23% from its November high.<\/p>\n \n\tThere is another, more concerning problem now coming to the fore however. For years the rest of the world has treated Chinese data almost with amusement, given the speed with which it is delivered if nothing else. Yesterday Beijing delivered September trade data while this week developed economies are reporting August data. Beijing manages to provide quarterly GDP results inside a month after the close of the quarter, and everyone else takes three months to provide a final result. At least one Chinese official has, in the past, admitted that such data lean more toward estimation than actual numbers.<\/p>\n \n\tForeign houses, such as HSBC, do provide their own estimates to counter what is possibly spin from Beijing, and recent history suggests the two sets of figures are not as far apart as to be that significant. However over the past few years China has been listing various stocks on foreign exchanges, which has provided a means for foreigners to invest in the emerging market powerhouse when direct investment on Chinese exchanges is limited to locals. Disclosure and reporting rules are very strict in the developed world, but not so in China. A month or so ago US investment funds aired their concern that numbers being posted by the plethora of internet start-ups – Chinese versions of Google, Youtube<\/span> and Facebook for example – did not look right, and indeed drilling down exposed potential ownership questions as well.<\/p>\n \n\tA growing distrust in Chinese corporate reporting came to a head yesterday when it was revealed China's sovereign wealth fund has been forced to enter the stock market and buy local bank shares to prop up debt-laden lenders. In so doing, debt issues were exposed of which global investors were unaware in terms of their extent. Out of control lending by Chinese banks has been a foreign concern ever since Beijing's enormous post-GFC<\/span> stimulus package was launched, but ascertaining accurate numbers has proven a difficult task.<\/p>\n \n\t[For more on Chinese bank lending, see today's Market Insight recording.]<\/p>\n \n\tThe bottom line is that the rest of the world is losing faith in the integrity of Chinese reporting, both government and corporate. The impact is also being felt in pricing of Beijing's recently listed sovereign bonds, known colloquially as “dim sum” bonds, which has come under pressure through sheer uncertainty. Such uncertainty undermines what many foreign investors had previously viewed as a safe haven compared to sovereign bonds elsewhere, such as those of debt-loaded Europe or the US.<\/p>\n \n\tOther foreign observers nevertheless dismiss such concerns, suggesting China simply has enough firepower to easily sort out any debt problems among its banks, and that on the wider scheme of things the Chinese growth story remains intact. One might argue that it is comforting to see dictatorial China's government simply step in and prop up bank capital on a whim, compared to the two years (to date) of European dithering and disagreement to get to the point of even considering propping up banks.<\/p>\n \n\tThe Chinese situation nevertheless weighed on Wall Street from the open last night, and then came the September quarter result from leading US bank JP Morgan (a Dow component). JPM<\/span> actually beat forecasts on the earnings line, but the absolute result represented a slowing from the previous quarter as investment bank profits were impacted by the weak markets. Management was cautious in its outlook, suggesting the December quarter will bring more of the same as global volatility persists.<\/p>\n \n\tJPM<\/span> shares finished the day down 5% and led all of the financial sector lower. History suggests that a bull market cannot occur unless the financial sector – a proxy for the health of an economy – leads the way. By 11am<\/span> the Dow was down 141 points.<\/p>\n \n\tIt appears, however, that the buyers are now lying in wait. The Dow reached almost back to square in the last hour before slipping slightly again at the death. The S&P 500 held over the 1200 mark. Tech stocks, as represented by the Nasdaq<\/span>, are clearly popular at this level. For the financials there's still a long row to hoe, and JP Morgan pointed out new regulations were going to cost the bank US$500m<\/span> and weak investment banking results would mean the cutting of 1,000 jobs.<\/p>\n \n\tTo back up apparent faith in the tech sector, Google came out after the bell and blew the Street away with its revenue and earnings results. Google share are up 6% in the after-market and will no doubt provide Wall Street with some strength from the open tonight, all other things being equal.<\/p>\n \n\tIn Wednesday night's trade in London, talk of China coming back in to the copper market had base metals prices pushing higher after they had fallen the night before. Last night news of the weak Chinese trade data had the fickle LME<\/span> turning on its heels yet again. Copper fell 2%, and all metals were down 1-3%.<\/p>\n \n\tThere was little impact from the US dollar last night as it was steady on its index at 76.95. Australia's surprisingly positive unemployment result yesterday now has economists suddenly dismissing a Cup Day rate cut from the RBA<\/span>, and hence the Aussie is up another half a cent to US$1.0207.<\/p>\n \n\tThe Chinese data also gave Nymex<\/span> traders a reason to sell, so West Texas crude was down US$1.32 to US$84.55\/bbl<\/span>. Again the spread widened, given Brent fell only US25c<\/span> to a number that would have any English cricketer shaking in his boots – US$111.11\/bbl<\/span>.<\/p>\n \n\tAfter a tepid response to this week's three and ten-year bond auctions from the US Treasury, traders were expecting last night's auction of thirty-years to be better received. Why? Because Chubby Checker is a seller of the short end and a buyer of the long end. But demand again disappointed, indicating that the world's thirst for safe haven US Treasuries is waning now there is light at the end of the European tunnel. <\/p>\n \n\tThe most watched price on Wall Street at the moment is, however, the VIX<\/span> volatility index. The VIX<\/span> peaked amidst the recent turmoil at 48 and has remained above the 30 level – the level above which loosely signifies fear – for three months. That hasn't happened since 2008. Traders have been waiting for the VIX<\/span> to fall below 30 as it would quantify an easing of concern and bode well for a stock market rally ahead. This week the VIX<\/span> has come down to flirt with the 30 level but just can't quite manage to fall through. It closed at 30.7 last night, suggesting investors will wait for more definitive resolution in Europe before true optimism can be justified.<\/p>\n \n\tThe SPI<\/span> Overnight fell 5 points.<\/p>\n \n\tToday sees the release of China's inflation data for September, and tonight sees US retail sales. <\/p>\n \n\t[Note: All paying members at FNArena<\/span> are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Concerns over Chinese financial integrity and a weak trade balance added to a poorly received result from JP Morgan last night. But Wall Street remained resilient. Dow down 40.<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[84],"tags":[90,23,21,27,29,24,41,91,22,46,26],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58989"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58989"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58989\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58989"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58989"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58989"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}