China Trade Data “Surprises” Bigly, Shows First Deficit In 3 Years

Wednesday begins in China, where we got highly anticipated trade data that probably shouldn’t have been so highly anticipated given that seasonality makes the compare largely meaningless.

But you know, whatever. Here’s the breakdown:

  • CHINA FEB. TRADE BALANCE -60.4B YUAN; EST. 172.5B YUAN
  • CHINA FEB. IMPORTS RISE 44.7% Y/Y IN YUAN TERMS; EST. 23.1%
  • CHINA FEB. EXPORTS RISE 4.2% Y/Y IN YUAN TERMS; EST. 14.6%

And here’s the version that’s not all in caps (via Bloomberg):

  • China customs administration announces data in yuan terms in statement; median est. 14.6% rise y/y (range +2.2% to +31.0%, 12 economists).
  • Feb. imports climbed 44.7% y/y; median est. 23.1% rise (range +10.3% to +45.0%, 12 economists)
  • Feb. trade deficit 60.4b yuan; median est. 172.5b yuan surplus (range 134.8b-242.7b yuan surplus, 12 economists)

So that’s the first deficit in three years. In USD terms the picture looks like this:

Deficit

(Goldman)

Seasonality aside, this makes for an interesting compare with yesterday’s FX reserve data which showed Beijing’s war chest rising back above the psychologically important $3 trillion mark. Here’s a bit of commentary from Goldman:

Over the past ten years there were only six monthly trade deficits and half of them occurred in February (the other half in March). The only year with two months of deficit was 2011 when the economy was overheated. We are not expecting that to occur this year and March trade balance is likely to turn positive. All else equal, the weaker trade balance would be expected to put downward pressure on the currency, although recently released data suggests foreign reserves were stable in February.

Right. And indeed at least one bank estimates that the intervention effect last month was the most positive since February 2015 (read: before the proverbial sh*t hit the fan in August of that year):

Intervention

(BofAML)

Here’s SocGen’s take on the data:

The main overnight data came from China’s trade figures. They’re distorted by seasonal effects but the underlying trend is of a clear pick up in trade growth overall, with imports in particularly strong in CNY terms, helped by rising prices. The trade balance meanwhile, was in deficit on the month and long-term, is in a deteriorating trend. There’s nothing to make the CNY look ‘undervalued’ in the data that I can see but the greater significance is that strong imports still support Asian growth for now. AUD/NZD longs are a way to benefit but that’s more a case of buying pull-backs than buying here. Long AUD/USD with a stop at 0.75 appeals to me, and long AUD/JPY too.

Moving on, we also got industrial production out of Germany. Here’s the breakdown there:

  • German Jan. Ind. Production Rises 2.8% M/m; Est. +2.7% M/m
  • Germany’s Federal Statistics Office reports production unchanged y/y wda; est. -0.6% y/y.
  • Forecast range of 1.3% to 5.5% m/m from 41 economists
    • Capital goods rise 6.1% m/m
    • Consumer goods rise 2.3% m/m
    • Basic goods rise 1.7% m/m

As Bloomberg reminds us, this “comes on the back of report on Tuesday showing factory orders plunged at the steepest pace since 2009 amid markedly below-average demand for big-ticket items.”

Other than that, things were largely quiet overnight, although from the look of things, the reflation narrative has gathered some steam heading into the US trading day. Here’s the overseas wrap:

  • Nikkei down 0.5% to 19,254.03
  • Topix down 0.3% to 1,550.25
  • Hang Seng Index up 0.4% to 23,782.27
  • Shanghai Composite down 0.05% to 3,240.67
  • Sensex down 0.3% to 28,904.36
  • Australia S&P/ASX 200 down 0.03% to 5,759.66
  • Kospi up 0.06% to 2,095.41
  • FTSE 7321.02 -17.97 -0.24%
  • DAX 11937.41 -28.73 -0.24%
  • CAC 4937.92 -17.08 -0.34%
  • IBEX 35 9810.60 8.90 0.09%

Oh, for anyone who cares, we’ll get the Spring budget from Chancellor of the Exchequer Philip Hammond. That’s obviously relevant for global markets given ongoing Brexit angst. Here’s a quick preview from SocGen:

Today’s main event may be Phillip Hammond’s first Spring Budget, soon to be demoted relative to the Autumn Statement. The fact that he doesn’t want two big policy announcements a year tells us what to expect – not much. Lots of noise, but an empty purse. Some growth forecast upgrades, which in turn deliver downward revisions to the budget deficit for 2016/7 and 2017/8, but no fiscal generosity. There will be talk of creating the room to cope with future uncertainty but the bottom line is that fiscal policy isn’t going to be accommodative, and monetary policy won’t get any less accommodative. The FX implication is that UK rates and in relative terms, UK yields, are anchored. As the US/UK 10- year real yield gap heads off towards 250bp, GBP/USD looks likely to head to, and through 1.20. EUR/GBP tracks real yields too and if the French election opens the way for higher Bund yields, it will open the way for a move back through EUR/GBP 0.90 too.

In the US, watch EIA data on the heels of yesterday’s big API build. Here’s the econ docket:

  • 7am: MBA Mortgage Applications, prior 5.8%
  • 8:15am: ADP Employment Change, est. 187,000, prior 246,000
  • 8:30am: Nonfarm Productivity, est. 1.5%, prior 1.3%
  • 8:30am: Unit Labor Costs, est. 1.6%, prior 1.7%
  • 8:30am: Revisions: Productivity and Costs
  • 10am: Wholesale Inventories MoM, est. -0.1%, prior -0.1%
  • 10am: Wholesale Trade Sales MoM, est. 0.5%, prior 2.6%

Happy trading.

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