Chinese Trade Data Weighs on Global Growth Outlook

Stocks fluctuated with oil while Treasuries and swap rates rallied after disappointing Chinese trade data renewed global growth concerns.  Chinese exports showed some resilience, declining less than forecast, but imports fell for the eleventh straight month, plunging 20% in August due to weak domestic demand.  The weak report dragged down emerging assets due to concern that the Chinese slowdown will spread to other less-developed economies.  China is set to release a number of economic reports in the coming days, headlined by next week’s GDP report, which is now likely to fall below Beijing’s 7% growth target.  

US banks and fixed income markets reopened after yesterday’s Columbus Day holiday to minimal data.  Data picks back up tomorrow, but investors will also focus on corporate earnings and deal activity this week.  The contradicting views of Fed officials were on full display today after St. Louis Fed President Bullard argued that the prudent course of action would be for the Fed to hike rates prior to year-end, countering Fed Governor Brainard’s wait and see approach that she outlined yesterday.  Brainard stressed patience, urging the Fed to wait for clear signs that the US recovery could withstand global headwinds.  Bullard instead pointed out that monetary policy would remain exceptionally accommodative even with a rate hike, and that timing is appropriate for the Fed to “pull back a little bit” from the emergency measures that have been in place since the financial crisis.  Financial markets are not forecasting a high probability of a rate hike before year end despite 13 of 17 Fed officials predicting one in 2015.