Weak China trade data hits equities, U.S. dollar

Thu Oct 13, 2016 3:03pm EDT
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By Herbert Lash

NEW YORK (Reuters) - Global equity markets slumped to a three-month low on Thursday after disappointing Chinese trade data renewed concerns about the world's second-largest economy, but rebounding oil prices and the dollar's market role led U.S. stocks to pare losses.

Stocks on Wall Street fell almost 1 percent and in Europe a bit more at their lows, following data that showed Chinese imports in dollar terms had contracted and exports dropped by a sharper-than-expected 10 percent.

The unexpected trade figures pointed to weaker Chinese demand both at home and aboard while deepening concerns over the latest depreciation in China's yuan currency, which hit a fresh six-year low against a firming U.S. dollar.

"If the Chinese economy is struggling it is a problem for the global economy and you're seeing that reflected in the capital markets, whether it be the strength in the dollar or the volatility in equities," said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

Oil prices rebounded after an initial bearish reading from a U.S. Energy Information Administration report soon focused on sharp inventory drawdowns in distillates, including diesel and heating oil, and a decline for gasoline.

The reversal in oil prices helped turn markets that have traded inversely to the dollar. In recent weeks that dollar has strengthened on growing expectations of a Fed rate hike, which had weakened stocks, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

"As you've seen the dollar pull back today and oil rally off its lows, the two of those combined have seen some macro money rotate into long equity positions," James said.

"That's why the (stock) market has rallied off its lows."   Continued...

A man stands next to an electronic board showing stock prices in Tokyo, Japan, August 18, 2016. REUTERS/Kim Kyung-Hoon