Asian markets were already on edge Friday following the ECB’s dramatic downgrade to the euro-area growth outlook, and China’s February trade data isn’t likely to help matters.
Although the ECB’s forecast cuts served as the basis for a decision to move ahead with more accommodation, the dovish pivot was small comfort considering what the depth of the cut to the 2019 euro-area GDP outlook seemed to say about the Governing Council’s faith in the resilience of the bloc’s economy. Subsequently, reports suggested some ECB officials believe even the downgraded forecasts are too optimistic.
It’s against that backdrop that China’s February trade data missed estimates handily.
Exports fell 20.7% YoY in USD terms last month, missing even the lowest estimate from 29 economists surveyed by Bloomberg. The number is far worse than the median estimate, which tipped a 5% drop. February imports missed too, falling 5.2% YoY, versus the median estimate of a 0.6% decline.
The data comes after January’s trade figures surprised to the upside. You might recall that exports rose 9.1% in January, markedly better than the 3.3% drop consensus was expecting. Imports fell just 1.5% versus an estimated 10.2% drop.
At the time, some were skeptical about holiday effects and front-loading, but the upside surprises were welcome considering how underwhelming December’s numbers were.
Now, we’re right back to staring at ostensibly disappointing figures at the end of a week which began with news that the US and China were on the verge of a “final” trade deal, only to end with doubts about whether a comprehensive agreement is in fact as imminent as it seemed just five days ago.
China’s January-February trade surplus with the US clocked in at 290.1 billion yuan, up 3.9% YoY. Exports to the US dropped 9.9% YoY during the period, while imports from the US dove 32.2%.
One could conceivably argue that plunging exports in February put pressure back on Beijing to strike a deal with Trump. But then again, Trump is said to be concerned about the prospect that any further delay risks imperiling the YTD rally in US stocks.
Unlike 2018, China has more of a cushion when it comes to the stock market than the US – thanks to a furious February rally, Mainland shares in China have trounced the S&P in 2019.
Although Friday is shaping up to be a lackluster session, the SHCOMP came into the day gunning for a ninth consecutive week of gains, while US equities are on track for their worst week since mid-December.
In any case, there will doubtlessly be plenty of debate on Friday about whether and to what extent the February data is down to holiday distortions and optimists will surely point to new stimulus measures tipped at the NPC as a sign to be optimistic going forward. Do note that a benchmark cut out of the PBoC looks increasingly likely at this point.
But the bottom line headed into the weekend is that “plunging Chinese exports” isn’t something anyone wants to hear right now amid persistent jitters about the outlook for the global economy and worries that the trade agreement we all thought was sealed last weekend may not be a done deal after all.