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Market Brief
Chinese growth exports fell sharply in March -14.6% y/y against 8.2% y/y rise (imports fell -12.3% against -11.3% expected). This sent the trade balance to its lowest level since early 2014. Worryingly, for the global growth outlook, exports showed broad destination deceleration (US and European exhibited large contractions) while imports for commodities continued to fall. Weak trade and exports indicate that China Q1 will face strong headwinds to reach current growth expectations around 7.1% y/y. However, there is significant volatility in Chinese numbers and Q4 2014 data was meaningfully elevated, so potentially Q1 GDP will not get so dragged down. Despite the disappointing March trade data Shanghai composite rose 2.18% and the Hang Seng climbed 2.21%. Cleary, the weak growth data suggests that Chinese policymakers will continued to ease, and therefore embolden equity traders. Although, equities are high and P/E are looking stretched, we remain optimistic that additional policy stimulus will keep asset prices buoyant. As data showed that exports from commodity producers dropped, the commodity bloc (AUD and NZD especially) was sold off. The AUD was under additional pressure as it is frequently viewed as a proxy for Chinese growth. AUDUSD extended losses to 0.7578 after being rejected by the 55d MA at .7750, putting near-term target at 0.7500 year-end low and bearish extension objective at 0.7450. NZDUSD broke lower through 0.7490 support on its way to 0.7443 session low. Bearish momentum indicates an extension of current downside to 0.7300 region. From Japan, Japan’s machine orders dropped 0.4%m/m in February, below expected fall of -2.2% (prior read was -1.7%). USDJPY traded up sharply to 120.75 clearing short-term resistance at 120.70. USDJPY remains our highest conviction trade for 2015 (see Weekly Report) and anticipate further weakness.
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