Trump’s trade war is hammering Chinese exports and it’s driving a global selloff

The news from China is bad.

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The news from China is bad.
source
REUTERS/Adrees Latif JSK

  • There’s a global selloff in stocks this morning following a rash of bad data across two continents.
  • The Shanghai Composite Index is down 4.4% after China’s biggest brokerage issued a sell rating on a major state-owned company, and new data shows Chinese exports dropped 21% in February.
  • Chinese exports declined 21% in February – partially driven by the US-China trade war.
  • European equities are trading downward after the European Central Bank cut its growth forecast to 1.1% and announced stimulus measures, signalling an economic slowdown.
  • German factory orders declined even though analysts were expecting them to go up.
  • US futures are down ahead of today’s jobs report.

Chinese stocks fell the most in nearly five months after the nation’s biggest brokerage issued a rare sell rating on the People’s Insurance Company (Group) of China, likely signalling the government’s desire to slow a market that has outperformed global rivals over the past two months. Separately, new data showing a 21% decline in Chinese exports in February – partially driven by the US-China trade war – didn’t help matters.

Citic Securities Co. told clients that the company was “significantly overvalued” and its stock could decline more than 50%, according to Bloomberg.

The Shanghai Composite Index.

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The Shanghai Composite Index.
source
Yahoo Finance

The bad news from China appears to be helping a global selloff in stocks. The context is that growth in China has been slowing for a while, and at the same time Europe is flirting with recession.

“Factory orders in Germany fell by 2.6% month-to-month in January, well below the consensus for a 0.5% increase. The year-over-year rate increased marginally to -3.9%,” according to Claus Vistesen of Pantheon Macroeconomics.

German new orders

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Pantheon Macroeconomics

“German industrial orders fell by their steepest amount in seven months in January. It is understandable why investors have been so worried about the outlook for global growth when you see figures like these,” Russ Mould, investment director at AJ Bell, told clients in his morning email.

  • European equities trended downward this morning after the European Central Bank cut its eurozone growth forecast yesterday to 1.1% this year, down from 1.7% three months ago. ECB president Mario Draghi also announced interest rates would be held steady for the rest of this year, and promised a tranche of cheap long-term loans for banks in September.
  • US futures dipped ahead of the release of the monthly jobs report later today. The movement follows the news that the US trade deficit widened to a 10-year high in 2018, despite President Trump’s efforts to narrow it.

“Chinese and Asian stocks were whacked and, combined with the ECB’s pessimistic outlook, the picture today looks decidedly risk-off,” said Neil Wilson, Chief Marketing Analyst at Markets.com.

These factors “are beginning to come together to paint a more dismal outlook for global growth,” said Lindsey Piegza, chief economist at Stifel Nicolaus & Co., to Bloomberg TV.

Here’s a roundup of the damage as of 9.02 am:

  • The Shanghai Composite Index fell 4.4%, Hong Kong’s Hang Seng index was down almost 2%, and the Nikkei 225 was down 2%.
  • The Euro Stoxx 50, DAX and FTSE 100 are all down by more than 0.5%.
  • US futures signal a decline of 0.8% to 1.2% for the Dow, S&P 500 and Nasdaq.