Our eye on a chart: World trade is adjusting and the movement is not over.

Published on November 10th 2022Market and research
Flageollet

Stéphanie BIGOU

Portfolio Manager

Intended for Professional Clients in accordance with MIFID.

Written on 8th November 2022 by Seeyond.

World trade is adjusting and the movement is not over.

Let's look at the facts:

- The CPB World Trade Monitor (WTM) is an instrument calculated by the Netherlands Bureau for Economic Policy Analysis. It assesses the dynamics of world trade by collecting, aggregating and summarizing monthly world trade data.

- Historically, the dynamics of world trade volume are strongly correlated with the "future" components of the industrial confidence indicators in Germany, Taiwan and Japan, three highly export-oriented economies.

- World trade has been adjusting steadily downward since the post-reopening growth peak in June 2021, and this adjustment is expected to last at least through early 2023.

What do we think?

- The upcoming earnings season is expected to be another disappointing one for many exporting companies, with the exception of the energy sector. For example, US exports have surged over the last months, but mainly due to the oil and gas sector, partially displacing Russian suppliers. Imports are slowing down on a year-on-year basis in the US and Europe, suggesting a future risk to private consumption and, in turn, global trade.

- The expected easing of anti-Covid measures in China could gradually contribute to easing the constraints on world trade in the months to come. However, this relief should only be short-lived, as we believe that more structural constraints will persist: 1- inflationary pressures beyond the official targets of central banks, particularly in emerging countries, 2- restrictive monetary policies and their lagging effects on real economy, 3- the energy crisis and the impossibility for governments to quickly offset the predominance of gas and oil, 4- the management of the outbreak of the Chinese real estate bubble and its recessionary effects, preventing China from becoming the global economic engine it once was.

- In this context, the markets most dependent on world trade are always at risk. In particular, it is difficult to anticipate a rebound other than tactical in emerging equities today, compared to other countries.

MA1

Source: Bloomberg, CPB World Trade Monitor, Seeyond – Data from January 2005 to August (world trade data) & October (local leading indicators) 2022 – Monthly

This article has been provided for information purposes only to professional clients as defined in the MiFID Directive. It must not be used for retail investors. The provision of this material or reference to specific sectors or markets in his article does not constitute investment advice or a recommendation or an offer to buy or sell any security. Investors should consider the investment objectives, risks, and expenses of any investment carefully before investing. Views expressed in this article as of the date indicated are subject to change and there can be no assurance that developments will transpire as may be forecasted in this article.