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Five Drivers Of Turn Around Tuesday


The recent trends in the global capital markets are reversing today. Although the price action yesterday warned of the risk, there have been five fundamental developments that are contributing to the price action today.

First was China’s September trade figures. The balance was little changed at $60.34 bln 9$60.24 bln in August). The consensus had forecast a fall toward $48.2 bln. The larger than expected surplus was driven by less weak exports and considerable weaker imports.

Exports fell 3.7% after a 5.5% decline in August. The consensus was for a 6% drop. It is the third negative year-over-year print in a row and is the sixth decline in the first nine months of the year. Imports plummeted 20.4% after a 13.8% decline in August. The consensus called for a 16% decline. It is the 11th consecutive month that imports fell on a year-over-year basis.

Although some observers see the mini-devaluation in August as having played a role with today’s report, we are more skeptical. The goods shipped in August were ordered months ago, and the devaluation was too small in the context of the value-added costs incurred in yuan to have much impact. We would highlight the important role that prices are playing.

We note that crude oil imports rebounded in September from three-month lows. China is building its strategic reserves with cheap oil. Also, Chinese refiners are a large...