Markets halted a prolonged skid on Thursday, as news from Europe was today mercifully limited. However, Chinese trade data and Indian currency intervention may give traders pause about the health of the world economy.
Export growth slowed by 50% in China according to the most recent reports released this morning. Although these numbers themselves are not bullish, some observers think that they’re indicative of an upcoming bottom. Martin Schulz of international equity at PNC Capital Advisors claims that “we’ve either hit or are very near the bottom in China right now. The weak economic news means the government will move to stimulate the economy.” Traders looking to make a play on the Chinese economy (FXI, quote) should watch for developments on the trade front.
The Reserve Bank of India moved Thursday to prop up the rupee (ICN, quote), which had touched an all-time low against the dollar earlier in the week. India’s central bank will now require exporters to sell half of their foreign currencies. Although traders initially applauded the move, sending the rupee higher, the sustainability of such measures is now being questioned. Anis Chakravarty, an economist for Deloitte claimed that “(t)hrough these measures the RBI will be able to lower the pace of deceleration to a certain extent, but they will not be able to reverse it – that will only happen once the macroeconomic sentiments are reversed.” For traders with access to the rupee, staying short against the dollar is the logical play here as today’s move higher is probably only temporary as the structural impediments to rupee appreciation remain intact.
Spain’s decision to take over troubled financial firm Bankia appears to have settled some nerves about the country’s banking system. Investors in Spain (EWP, quote) have apparently approved of the move as other Spanish banking stocks rose in Thursday trading. According to Bjork, this may be a positive signal of intent from the Spanish government that they’re finally willing to address the ramifications of the country’s real estate bubble. By creating provisions for banks to restructure bad real estate loans, Spain’s banks have taken a necessary first step towards meaningful reform.
China Investment Corporation, the sovereign wealth fund of the People’s Republic of China, decided to halt the purchase of European bonds as a result of the lingering crisis. Gao Xiqing, head of the fund, told journalists that while the country is shying away from sovereign debt, CIC is still looking for other investment opportunities in Europe. However, their focus remains on Asia and Latin America and away from Europe and the U.S.
The Baltic nation of Latvia’s economy grew at a 6.2% clip in the first quarter, in spite of the pervasive doom and gloom in the euro zone. Remarkably, this comes after employing measures of austerity after a massive recession in 2009-2010 that saw GDP plummet almost 25%. Latvia’s growth rate is now the fastest in the euro zone, thanks to its exposure to less depressed Eastern European economies like Poland and Russia.