Julius Baer: China, bonos gubernamentales y materias primas

Redacción - Viernes, 13 de Enero

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ECONOMIES China: Difficult trade environment, more credit into public projects This morning’s trade data for December disappointed on the export side, with exports declining 6.1% y/y in USD terms. Imports were around expectations with a 3.1% rise. The fall in exports is to a large extent due to a high base effect from last year and was cushioned by a weaker yuan (exports were up 0.6% y/y in yuan terms). Regionally, exports to the US grew, while they were weaker for the eurozone and Japan. The rise in imports can be explained by the rise in commodity prices rather than volumes, which actually slowed slightly. Looking into the new year, we continue to expect a still difficult, but slightly improving environment for exports on the back of a weaker yuan and a global upturn in manufacturing activity. Moreover, credit supply remains ample. December new loans and total social financing were much higher than expected, mainly due to higher medium-long term credits to corporates. This likely represents government support in the form of infrastructure and public projects. Mortgage lending, on the other hand, moderated due to recent restrictions to curb the property market. Bond lending even decreased as the People’s Bank of China tightened liquidity conditions by guiding interest rates higher.

Stability is paramount for China in the coming months. We expect credit growth to be maintained around current levels in order to support growth, which could soften somewhat due to a property market cooling following restrictions. A soft trade recovery, supported by a weaker renminbi, is also in the cards, at least for the next months, given the risk of trade frictions with the US. We also expect stability in the USD/RMB in the short term, but see further depreciation of the Chinese currency in the mid to longer run.

 

Susan Joho, Economist, Julius Baer

 

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FIXED INCOME

 

Government bonds: Central banks keep markets on the move

 

The new narrative in 2017 is the reduction of monetary support the bond markets have to cope with. In the US, the question is whether the Federal Reserve will raise rates two (futures market), three (our projection) or four (Fed’s own projection) times. In the eurozone, the debate is about the right timing of tapering, not of delivering additional support. Yesterday’s comments and documents from central banks all have to be seen in this context. In the US, another Fed official indicated the need to reduce the balance sheet of the bank, i.e. sell Treasury bonds, relatively soon. The comments made the 10-year Treasury note close on a week footing. In the eurozone, the minutes of the last ECB meeting confirmed that an increasing number of ECB officials worry about the physical limitations of its purchase programme. 

The combination of central bank comments, strong incoming economic data and the amount of new issues all lead to upward pressure on yields. 

 

Markus Allenspach, Head Fixed Income Research, Julius Baer

 

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COMMODITIES

 

Commodities: Soybeans spike on production fall

 

Lower than expected United States soybean production was the biggest surprise in yesterday's reports released by the United States Department of Agriculture. The production cut of just over 1% tightened the outlook for US stocks in 2017, sending prices nearly 3% higher. The outlook for global stocks however remained virtually unchanged with the shortfall in the US being offset by a 2% expected increase in Brazilian production. Nonetheless, the tighter inventory outlook for the US will require us to increase our soybean price target over the coming day. However, with big South American crops expected to increase trade competition with the US, this is not time to chase the rally. We remain bearish, albeit a little less, on soybean prices. Despite the revision, US production of corn and soybeans are the biggest ever, maintaining ample global supplies. Consequently, price action in wheat and corn remained relatively benign. News that low wheat prices have prompted US farmer to sow the second smallest area since 1909 was largely expected by the market. We maintain our neutral price outlook for both wheat and corn.

An unexpected fall in US soybean production buoyed soybean prices yesterday, requiring us to upwardly revise our soybean price forecast. That said, we still see downside from today’s prices and maintain our bearish outlook.

 

Warren Kreyzig, Commodities Research Analyst, Julius Baer

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