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Golden Week no More- China brings out the bears

After the big upside move last week, it’s little wonder we’re seeing a little caution from investors now. Consumer staples and healthcare are garnering most of the flow and again it’s the materials sector that’s taking the worst hit. It was nice when it lasted.

Last week was a golden one for investors and the ‘out of sight, out of mind’ mentality was a decent if temporary replacement for basic fundamentals but China is back on the radar today and once again for all the  wrong reasons.

The spectre of slowing growth in the world’s second biggest economy is now again presented in sharp relief with both exports and imports falling in September – this is in spite of the myriad of stimulus measures undertaken by the PBOC over the past number of months. In dollar terms, the fall in imports of 20.4% is due almost entirely to falling import prices.

The disinflation phenomena seems to be here to stay and GBPUSD manifested  the risks of attempting to ascertain a trend in the FX complex with a round trip up to 1.5388 before falling back to 1.5259 on the back of the weaker than expected UK CPI print.

Copper is also adding to the losses seen yesterday, now trading at $2.39/lb – the failure to even challenge the highs seen in September tend to put the bias to the downside although we can expect a certain degree consolidation – the price is already down 18% since mid- May.

Oil’s slide yesterday, on oversupply concerns, has sent oil company shares lower and airlines are reaping the benefit with EasyJet and IAG recapturing gains in early trade. This has essentially been confirmed today by the IEA. Demand growth, on the back of weak global GDP is likely to see this oversupply glut endure through 2016. Brent Crude prices has been grappling with the $50/bbl marker lately but remaining around this level now seems to be an outlier and additional falls will mean it will  present the usual psychological resistance, despite the recent weakening in the greenback. A return to the lows seen earlier this month seem the more likely outcome for now.