China Uncertainty & Brexit Scenarios

We have already covered Brexit yesterday on here so we'll cover China's dismal trade figures, which raise fresh questions about the risks of a sharp slowdown. CAD & NZD are the strongest and CHF & JPY are the weakest since the start of Asia's Tuesday session. The Brexit vote is due later today at 14:00 Eastern/19:00 GMT. The Premium video ahead of the Brexit vote shall be posted to subscribers after the close of the London session.  More on Brexit Vote Scenarios here

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China's economy could be struggling far more than believed. We have long highlighted the importance of Chinese imports as a leading indicator of global growth. Trade is also one of the most-reliable Chinese data points owing to its bilateral nature  -- ie it's extremely tough to manipulate given that both trade partners report the number.

In yuan terms, imports fell 3.1% year-over-year in December compared to a rise of +12.0% expected. In dollar terms imports were down 7.6% y/y (lowest since mid 2016), compared to +4.5% expected. Either way it's one the largest misses on Chinese data in memory.

The market was surprisingly sanguine. The thinking is that this is a temporary slowdown that will be reversed by the end of the trade war and Chinese stimulus but that's hardly a guarantee. Moreover, China has previously resorted to industrial levers, but this time it will require consumers cooperate -- a tougher task ahead.

The Chinese data calendar is quiet until next Monday when retail sales, industrial production and GDP are all due. Watch for de-risking on Friday ahead of the data and keep an eye on corporate commentary on the state of China's economy.

In the shorter term, the focus will be on the meaningful Brexit vote. It's expected between 1900-20:00 GMT. For more on this, please see yesterday's IMT.