China Stays in Focus After Tumultuous First Trading Week of 2016

DUBLIN (Reuters) —
A Chinese investor monitors stock prices at a brokerage house in Beijing, Monday, Aug. 24, 2015. Stocks tumbled across Asia on Monday as investors shaken by the sell-off last week on Wall Street unloaded shares in practically every sector. (AP Photo/Mark Schiefelbein)
A Chinese investor monitors stock prices at a brokerage house in Beijing. (AP Photo/Mark Schiefelbein)

Having rocked world markets at the start of 2016, China will remain in the spotlight in the coming week, with data that may help gauge how sharply growth is slowing in the world’s second-largest economy.

The tremors set off by the 1 percent slide in China’s yuan, from a hammering of Shanghai stocks to oil’s slide to a 12-year low and Wall Street’s weakest start to a year since 2001, echoed the China-triggered turbulence of last August.

Back then Beijing’s 2 percent devaluation of the yuan in the midst of an emerging market and commodity rout led to Wall Street’s biggest one-day drop in four years.

Both episodes show the depth of concern about the strength of the Chinese economy.

A raft of data in the coming weeks, starting with export and import figures on Wednesday, is likely to show activity in the world’s second-largest economy continuing to slow, Reuters polls showed.

Exports were expected to have dropped 8 percent in December after sliding 6.8 percent in November, and imports may have declined 11.5 percent in December from a year earlier, following an 8.7 percent drop in November, the median forecast of 25 analysts polled by Reuters showed.

The trade data will set the stage for the release of fourth quarter and full-year gross domestic product (GDP) data on Jan. 19 along with industrial output, retail sales and fixed asset investment data.

“While the scale of recent price action is alarming, the story is not a new one,” Goldman Sachs analysts said, noting that European equities, whose sales are highly exposed to China, had suffered their worst start to a year since the early 1970s.

“The broader concerns are a continuation of a theme that has been running for some time: China weakness, the industrial slowdown and collapsing commodity prices.”

While China’s major stock indexes regained some ground on Friday, Beijing letting the yuan depreciate faster has raised concerns that it might be aiming for a competitive devaluation to help its struggling exporters.

Some investors fear that is a signal that its economy is even weaker than had been imagined.

When British Finance Minister George Osborne warned of a “dangerous cocktail” of economic threats on Thursday – fretting over slower growth in China, Brazil and Russia, tension in the Middle East and stock market falls – he was urging against complacency at home, where economic growth has been robust.

The Bank of England, which meets on Thursday, has been contemplating when it will need to raise rates in one of the world’s fastest-growing rich economies.

But analysts polled by Reuters don’t see it taking action for the first time in more than eight years until the second quarter of the year.

The central bank’s policymakers want to see stronger wage growth among other factors before raising rates from their record low levels. Recent weaker than expected earnings data has even led some economists to say it may not hike rates in the first half of the year after all.

Next week will also see rate decisions from South Korea, Chile, Poland and Serbia.

“If you thought 2016 would be the Year of the Rise you may need to think again,” said Yael Selfin, Head of Macroeconomics at KPMG. “There’ll be plenty of no action, or near no action.”

For the outlier in a world of loose monetary policy – the U.S. Federal Reserve – it is a question of how many rate hikes will follow December’s first tightening in 9-1/2 years, with policymakers lately offering a range of options.

Data on Friday showed U.S. non-farm payrolls surged by 292,000 in December, keeping the jobless rate at a 7-1/2 year low of 5.0 percent and suggesting a recent manufacturing-led slowdown in economic growth would be temporary.

With investors pricing in a growing chance of a further rate cut from the ECB, and new governing council member Philip Lane saying more quantitative easing would be forthcoming if needed, euro zone industrial production on Wednesday will give a picture of the underlying health of the slowly recovering economy.

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