China posted a trade balance recovery to an audible global sigh of relief from the captains of finance. Some allege that the figures have been cooked in special sauce but, even so, the positive data from the world’s economic kitchen has mixed implications.
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Mon 12 October
US Bank Holiday
Tue 13 October
Australia Business Confidence (actual:5 previous:1)
China Trade Balance (actual:60.3B expected:46.9B previous:60.2B)
UK CPI year-on-year (expected:0.0% previous:0.0%)
Wed 14 October
China CPI year-on-year (expected:1.8% previous:2.0%)
US Core Retail Sales (expected:-0.1% previous:0.1%)
Thu 15 October
US CPI month-on-month (expected:-0.2% previous:-0.1%)
US Unemployment Claims (expected:269K previous:263K)
Fri 16 October
Europe CPI year-on-year (expected:-0.1% previous:-0.1%)
US Consumer Sentiment (expected:88.8 previous:87.2)
After a roller coaster of swinging market sentiment on Monday, China released positive trade balance data on Tueday. Yet, the market’s response is flat. We examine the implications of the data, as well as the data behind the data.
China trade balance for September came in at 376.2bn CNY on Tuesday morning. The reason why this is a relief for markets is because the widely forecasted expectation was for 292.4bn CNY. The anticipated deterioration in the world’s second largest economy, and leading Emerging Market, is averted – for now.
Monday had equity markets see-sawing on swinging sentiment. Reuters reported early in the day:
China stocks, yuan jump in heavy trade on stimulus hopes
While Nasdaq reported only an hour later:
Asian Shares Fall Ahead of China Export Data
An hour after the data release, the benchmark Shanghai Composite Index was trading slightly lower:
A look at the data that comprises trade balance reveals better than expected exports but weaker imports:
Exports were expected to decline to -7.4% (year-on-year) but only declined to -1.1%. Yuan devaluation during the period may have been positive for China exports, but rising labour costs and any yuan appreciation are likely to hurt exporters going forward.
Imports were down -17.7% (year-on-year), worse than the expected -16.5%.
Despite a nominal trade balance surplus – better than expected – the market’s muted response can be attributed to the fact that both imports and exports had declined in real terms. The fact that yuan devaluation had made exports less bad does not bolster confidence in this major economy that has reported declining production during 2015.
According to ForexLive a China Customs spokesperson announced:
China economy faces relatively large downward pressure
As reported by Business Insider, a Goldman Sachs analyst team led by Peter Oppenheimer, has identified the current global economic downturn as a “Third Wave of Crisis” of the debt supercycle of the past few decades. Now, where did we read that before?
According to Goldman Sachs, this wave is characterized by slumping commodities prices, emerging-market recession, and “low global inflation” (read “deflation”).
Illustrated in the chart, the current crisis is interpreted as a consequence of central banks’ response to the “US Housing Crisis” (Wall Street shadow banks CDS crisis, actually, but Goldman Sachs was a participant, so a euphemistic label is better) and European Sovereign Debt crisis. The central banks’ policy of lowering interest rates as a means of remedying the first two debt-fueled crises, encouraged investors to invest in higher yielding emerging markets such as China.
Now that interest rate hikes are looming on the horizon, money is flowing out of emerging markets and, by implication, their commodity-driven economies. And there you have it.
The Goldman Sachs report believes that when this third wave has passed, then the good times will roll again. Great.
This analysis is provided by xbt.social.
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The writer trades Bitcoin. Trade and Investment is risky and subject to probability and market changes. CCN.LA accepts no liability for losses incurred as a result of anything written in this report.
Charts from TradingView, financial data & cartoon from Investing.com, image from Shutterstock.