China Slowdown Hits Oil, Stocks
Oil prices slid on Monday following a cluster of economic reports released late on Sunday that largely confirm worries that China’s economy continues to slow.
Monday, October 19, 2015 - 00:00
Chinese GDP grew an inflation-adjusted 6.9% in the third-quarter, year-on-year, which is the lowest rate since the financial crisis, though a tick above the 6.8% consensus estimate. GDP growth had held at 7.0% in the first two quarters of the year, matching the Chinese government’s target. This new slowdown comes despite a selection of stimulus measures introduced by Beijing since the summer. A separate report showed that Chinese industrial output significantly slowed in September, easing to a lower-than-expected annual change of 5.7% from the 6.1% seen in August, with auto production slowing for a sixth consecutive month. If there was a glimmer of light amongst the dark clouds, it was retail sales, which grew 0.89% in September, taking the annual change to 10.9% from 10.8% in August, but this only matched expectations.
Overall, the data looks to confirm that China’s economy continues to slow as it makes the transition from an export-driven economy to a more-developed, services-based one. As the second-largest consumer of oil in the world, this slowdown for China does not bode well for global oil demand, and this is one of the key issues behind the commodity’s decline this morning. US crude oil futures for December slid more than 2% to $46.77 a barrel. Also playing into demand fears was the news that Saudi Arabia exported 278,000 barrels a day fewer in August than in July, while production declined by just 50,000 barrels. Stockpiles of oil in Saudi Arabia, the world’s largest exporter of oil, have swelled this year to record levels. Hanging over the global market, meanwhile, is the prospect of Iranian supplies increasing once sanctions are removed; an Iranian oil official claimed on Monday that oil production could rise by 500,000 barrels a day once sanctions are lifted.
The softness of the Chinese data also served to weigh on US stock prices in early trading. Shortly after the opening bell on Wall Street, the Dow Jones was trading down 54 points or 0.32%, while the more comprehensive stock market measure of the S&P 500 Index sank 0.35% to 2025.9.
The US economic calendar is slow for the first half of the week, with most of the focus being on the housing market. The main indicators of note are the National Associations of Home Builders’ housing market index on Monday morning, which is expected to remain unchanged at 62 for October, and housing starts on Tuesday, which is expected to show a rebound of around 2% for September, following August’s sharp slowdown. We also have the FHFA house price index and existing home sales later in the week.
Dow component and technology bellwether IBM ($IBM) reports after the market close on Monday. The company has been transitioning its focus increasingly towards the growth area of cloud services; while this area has boasted impressive growth rates, the offset has been diminishing returns from its traditional software division. The market appears to be unconvinced by the change of business model so far, with Big Blue’s share price slipping more than 6% so far in 2015.
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