Data out on Wednesday showed a drop-off in the growth of Chinese exports.
What does this mean?
Canny investors know that shrinking export growth is a canary in the coal mine for the health of the Chinese economy, and new data suggests that canary’s looking a little worse for wear. Falling global demand and seemingly endless Covid restrictions have hit Chinese exports hard: August’s 7% uptick from the same time last year is a far cry from the 13% that was expected. What’s worse, economists now think single-digit growth mightn’t be an exception going forward: in fact, it could easily become the new rule. And with last month’s import growth stunted at a measly 0.3%, China will be hard pushed to plug the gap with domestic demand.
Why should I care?
For markets: The yuan’s looking iffy.
Weaker exports mean less money flowing into China, weakening its domestic currency as a result. Add an especially sturdy US dollar to the mix, and suddenly the prospect of the yuan crossing the 7-per-dollar mark looks increasingly likely. But the Chinese government – busy preparing for its twice-a-decade party reshuffle next month – is doing its darndest to stop a disorderly plunge in the currency from upsetting stocks and hitting the wider financial system. That’s probably why the central bank has been taking steps to stymie the currency’s depreciation, which include this week’s decision to let banks hold less foreign currency in reserve.
The bigger picture: China’s still in the ascendant.
China has its fair share of issues, sure, but analysts at Oxford Economics still believe its economy will grow an average of roughly 4.5% this decade, and stay steady at 3% the decade after. And while that does mean China would miss its grandiose target of doubling its economy between 2020 and 2035, the numbers still show China outstripping the US to take the throne as the world’s biggest economy by 2033.
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Repsol’s Seeing Green
Repsol announced on Wednesday that it’s selling a stake in its oil and gas business.
What does this mean?
Oil companies know they need to clean up their emission-exuding acts if they want to keep investors sweet, but they also know dirtier traditional fuels make them the dough they need to pay their shareholders and fund clean energy initiatives. That’s a tricky balance to strike, but it looks like Repsol might’ve struck it: Spain’s biggest oil and gas producer announced on Wednesday that it’s selling 25% of its traditionally-focused exploration and production business to specialist energy investor EIG. The nearly $5 billion-dollar deal means it’ll still have a hand in world-fueling oil and gas, while also helping it fund the build-out of its low-carbon business that’ll invest in things like wind farms and renewably-made hydrogen.
Why should I care?
Zooming in: Repsol’s open-minded.
Rival oil companies like Shell and BP have so far resisted investors’ pleas to cash in on the value of their traditional business, instead insisting they’re better off as integrated companies. But Repsol – the first big oil company to attempt a deal like this – is committed to hitting net-zero emissions by 2050, and even wants its low-carbon business to make up nearly half of all its investments by 2030. That means Repsol will have to raise more cash or distance itself further from fossil fuels, which might be why the deal includes the potential listing of the business on the US stock market from 2026.
The bigger picture: Fossil fuels are has-beens.
Repsol might be right to branch out from fossil fuels: the price of oil dropped below $85 a barrel on Wednesday for the first time since January, wiping out the gains from earlier this week when OPEC+ – a group of oil-producing nations – announced a cut in production. After all, waning global demand is putting extreme pressure on the oil price, even as Russian elixir stays in short supply.
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