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Daily Agenda: Chinese Data Shows Stimulus Impact

Chinese exports rose in yuan terms; Saudi Arabia appoints new oil minister; Canada wild fires so far don’t affect oil supplies.

Economic data from China released over the weekend revealed more signals that stimulus measures by Beijing policymakers are starting to have an effect, if not as large as many had hoped. Both imports and exports were weaker than consensus economist forecasts in April, with shipments abroad falling by 1.8 percent year-over-year versus a prior gain of 11.5 percent. Critically, according to the Administration of Customs, exports actually rose in local currency terms by more than 4 percent versus April 2015, an indication that yuan interventions by the People’s Bank of China are assisting a modest recovery for activity in the private sector. The People’s Bank of China foreign currency reserves figures, also released on Sunday, show that the central bank’s coffers swelled by $7 billion. For investors, the impact of Chinese stimulus is mixed. A rebound in oil imports, which took inbound crude shipments to a record level, was offset by a spike in steel shipments as fabricators aggressively sold into offshore markets. Ultimately for financial assets, the most important data point from Sunday may be the 11 percent contraction of the yuan versus the same month last year, the 18th consecutive monthly decline and a signal that despite improving foreign trade demand at home remains sluggish. Weak domestic demand and rising sexport because of a weak currency may suggest that Beijing’s efforts to prop up industry are working, but that organic growth remains elusive.

Saudi Arabia appoints new oil chief. On Sunday, Saudi Arabia announced that Khalid Al-Falih, the chairman of Arabian Oil Co., commonly known as Aramco, will ascend to the office of oil minister for the Kingdom, succeeding Ali al-Naimi. In a statement issued upon his appointment, Al-Falih indicated that he intends to continue the path laid out by his predecessor, suggesting that only gradual moderation of production levels is likely. Separately, on Saturday, the Kingdom announced that Fahad Al Mubarak would step down as the governor of the central bank and be succeeded by Ahmed Al Kholifey, previously the deputy governor.

Oil production unhindered by fire. A massive wild fire in Alberta, Canada over the weekend that caused the evacuation of more than 100,000 residents did not affect oil-sands production in the region, authorities say. Although production facilities escaped damage, a significant supply delay is expected as the region recovers. In early trading on Monday, futures contracts for front-month delivery of West Texas Intermediate crude rose by nearly 1 percent to $45.60 per barrel.

Duterte likely to win Philippines presidency. Initial exit polls indicate that Rodrigo Duterte, the mayor of Davao City, has a commanding lead in the presidential election in the Philippines. The election cycle has been marred by problems with electronic voting machines that have undermined claims by the country’s election commission that an orderly outcome within 24 hours was feasible. A populist outsider, Duterte has pledged to eradicate government corruption while making controversial statements on law enforcement and religion.

Ouster at Lending Club. On Monday, Lending Club Corp. announced that Renaud Laplanche will resign as CEO of the company. The move comes after an internal audit unveiled a concentrated series of loans to a single counterparty in direct conflict with the company’s business model and risk-management policy. First-quarter results fell short of analyst estimates

Portfolio Perspective: Something to Talk About

Economic reports hover somewhere on the border between good and bad. One mistake that we should be aware of is that people who watch and talk about these numbers must have something to talk about. Naturally, any blip in the data becomes a subject for discussion, and it’s not very exciting to say “this is almost certainly statistical noise and is insignificant when seen in the big picture.” However, this is often the case. Economic trends turn on a nearly glacial scale; if we parse every release and search for some significance, we will often be misled. In much of this work, the proverbial 30,000 foot view is the right one — maintain an awareness of bigger trends.

It is also worth mentioning that we need to avoid the natural inclination to find points of concern. Too many investors missed too much of the last bull market because they did not understand how stocks could rally based on _____ (fill in the blank with any of a long list of factors). The benefit of a disciplined tactical process is that it makes us focus on the reality of what the market is saying, on what is happening right now and what is most likely to happen in the future, and much of this is strongly bullish. There is a very high probability that stocks will continue higher in the next few quarters.

Structurally, pauses in markets that come after large advances are usually bullish. There are some refinements to that understanding, but this is one of the most important concepts in technical analysis. We can read the last few weeks’ action in stocks as being a consolidation near recent highs, and, in fact, the entire 2014-present trading range is a very large-scale consolidation near recent highs. All of this is far more likely to be bullish than it is to be bearish. The smart bets are placed on the long side in stocks at this time.

Adam Grimes is chief investment officer for Waverly Advisors in Pittsford, New York.

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