Weak German and Chinese data drives energy markets lower

• Chinese trade data overshadows IMF growth upgrade
• RBA raise rates, citing ongoing price pressures
• Energy markets weaken on worrying data out of China and Germany

Asian markets have been hit hard overnight with a -6.4% October exports figure from China overshadowing an IMF growth upgrade for the year ahead. Coming off the back of a 1 trillion-yuan sovereign bond issue, there is a hope that the Chinese growth trajectory will slightly improve, but the IMF remains steadfast on the idea that their growth will weaken into 2024 despite upgrading their 2024 GDP forecast from 4.2% to 4.6%.

In Australia, the RBA opted to raise rates once again, citing ongoing sticky inflation pressures that will require continued efforts to bring down. The decision to upgrade inflation forecasts alongside their hike signals the ongoing concern that the move back down to target will take longer than previously anticipated. Nonetheless, with the Australian cash rate (4.35%) still well below their peers at the Fed (5.50%), RBNZ (5.50%) and BoE (5.25%), the AUD has been limited in its gains this morning.

Energy markets are heading swiftly lower this week, with US crude falling into a two-month low as Chinese trade and German manufacturing data highlighted a waning demand picture. Overnight data out of China saw a -6.4% decline in exports, raising concerns over the health of the Asian powerhouse. Meanwhile, the latest German industrial production reading for September served to signal the effects of a waning manufacturing sector in Europe, with the -1.4% reading coming alongside a shocking 38.3 construction PMI from Europe’s largest economy. With the Saudi Arabian GDP figure for Q3 collapsing to -4.5%, it makes sense to question how long they will constrain production in a bid to prop-up energy prices.

We are starting to see crack appear in the bullish theme that dominated last week, with US markets pointing towards a likely pullback as they follow their European counterparts lower. Just as the RBA has signalled concerns over the length of time it could take to bring inflation down to target, the optimism over an end to Fed tightening will likely be tempered by the reality over how long this normalization of price pressures could take. While recent central bank meetings have helped lift spirits as we potentially leave the tightening phase behind us, this may not necessarily justify an all-out return to optimism quite yet. As such, the latest rally instead leaves markets somewhat exposed to another period of selling pressure. Looking ahead, watch out for US trade data, alongside earnings from Gilead, Uber, and Warren Buffett favourite Occidental Petroleum.