In what will probably be a relief for investors who have spent the last month (or more) fretting about a synchronized global slowdown, China’s trade numbers came in ahead of expectations on Thursday.
Disappointing PMI data and signs that the trade war is starting to weigh materially on sentiment began showing up in earnest over the past couple of weeks, leading analysts and commentators to question whether “Goldilocks” was not only dead, but in fact dead and buried.
The “Goldilocks” narrative that underpinned the low vol. regime relied on two pillars of support: Synchronized global growth and well-anchored inflation. In the simplest possible terms, trade frictions threatened to undercut both of those pillars.
“The continued contraction in trade-related PMI indices, which began in June, suggested a more significant impact of tariffs to show up in Q4 18-Q1 19, given a lag of several months from new orders to export shipments, and a gradual dissipation of the front-loading effect that likely masked the negative drag from initial tariffs in Q3”, Barclays wrote last week, adding that if you ask them, external headwinds are likely to increase.
Remember, export growth in China held up well in September, but many attributed that resilience to a mad dash to get out ahead of the tariffs.
It’s with all of that as the backdrop that China’s exports rose 15.6% YoY in dollar terms in October, easily beating consensus of 11.7%, and coming in smack in the middle of the range from 27 estimates. Imports, meanwhile, also beat estimates, rising 21.4% YoY in dollar terms, versus a median estimate of 14.5%.
Additionally, China’s surplus with the U.S. fell to $31.78 billion in October (exports to the U.S. were $42.72 billion and imports from U.S. were $10.94 billion). That’s down from $34 billion in September, which was the second consecutive record-setting month for Beijing’s surplus with the U.S., a statistic that likely served to agitate Trump at the worst possible time.
Thursday’s trade data comes on the heels of a truly tumultuous week. Last Monday, reports suggested that if there’s no breakthrough when Trump and President Xi meet at the G-20, the U.S. will publish a list in conjunction with tariffs on the remainder of Chinese imports.
Fast forward to last Thursday and Trump was tweeting about a “very good, very long” phone chat he had with Xi. Then, on Friday, a Bloomberg story that said the President had instructed his cabinet to draft a truce sparked a ridiculous rally in Asian equities, with the Hang Seng and the Kospi rising the most in seven years.
Larry Kudlow would subsequently walk that back leaving everyone in limbo headed into the weekend.
In any event, Thursday’s data appears to be positive and could suggest there’s some truth to Beijing’s contention that the Chinese economy is still on solid footing. Or China could just be making it all up. One really never knows, which is what makes this data so much fun.