As China’s Latest Trade Data Disappoints, Market Sees Canaries In Singapore

If bad news is “good” news by way of decelerating growth stoking bets on more stimulus from monetary policymakers, market participants will be happy with the trade data out of China.

Exports fell 1.3% in June and imports dove 7.3%, with the latter print much worse than the median estimate of a 4.6% drop. Imports from the US plunged more than 31%. At $29.9 billion, China’s surplus with the US was the largest this year.

Although the exports number was actually a shade better than expectations, the imports miss and generally subdued shipments to the country’s major trading partners continue to suggest that the trade war is exerting a drag on global growth.

(Barclays)

“A continued worldwide moderation in manufacturing sentiment and new export orders suggest that global trade will likely start H2 on a soft footing”, Barclays wrote Friday. “We think lingering uncertainty means this is unlikely to improve soon, even taking into account the reduced probability of near-term escalation following the Osaka G20 ceasefire”, the bank went on to say, adding that if you ask them, China’s exports are likely to remain in contraction “at single-digit levels” during the second half of the year.

Donald Trump on Thursday chided Beijing for not moving quickly enough to purchase US agricultural products, something he promised would happen following the Osaka truce. At the time, some market participants suggested Trump might have been, at best, exaggerating China’s commitment to buying more US farm products. Reports out Friday underscore the point. “According to officials in Beijing familiar with the talks, no such agreement was made”, Bloomberg writes, adding that “China’s Commerce Ministry [has] also indicated that in their view, substantial discussions have yet to restart even though both sides spoke on the phone”.

You’re reminded that Trump made similar claims during the brief standoff with Mexico, insisting that America’s southern neighbor had pledged to ramp up its already substantial purchases of US agricultural goods. That turned out to be a complete fabrication.

Read more: Déjà Vu All Over Again As China May Provide Relief To Trump’s ‘Great Patriot Farmers’

Getting back to the outlook for global growth, Singapore’s economy contracted at an annualized 3.4% pace in Q2 (QoQ), the biggest decline since 2012. Expect to hear a fair share of “like South Korea”, stories with the word “bellwether” in them.

“The growth weakness was unexpectedly broad-based, compounding the expected weakness in trade-related sectors”, BofA fretted on Friday. “With such a broad-based decline in output, we see a heightened risk of the economy slipping into a technical recession [and] while the advance estimates tend to be revised subsequently with an upward bias, the broad-based and deep nature of the contraction means growth will likely stay in negative territory”, the bank added.

This just underscores the deepening global slump, regional malaise and weakness in technology-related trade. “The manufacturing sector contracted by 3.8% on a YoY basis in the second quarter, extending the 0.4% decline in the previous quarter”, the trade Ministry said, blaming output declines in the electronics and precision engineering clusters. QoQ, the sector shrank by 6.0%, which actually represented a moderation from the 6.4% contraction last quarter.

That Singapore is apparently teetering on the brink of recession doesn’t bode particularly well for the regional outlook – “canaries”, “coal mines” and such.

So, if it’s evidence of subdued growth and the persistence of the type of “uncertainty’ that Jerome Powell mentioned two-dozen times in his remarks to Congress this week you’re looking for, there you have it.

Given the read-through for stimulus, this should easily be enough to push equities to new record highs.