Terms Of Trade

Equities seemed a bit nervous to start the new week as concerns over new US sanctions on Chinese officials and Brexit brinksmanship overshadowed blockbuster Chinese export data.

The Trump administration will sanction “at least” a dozen additional Chinese officials, including some described as “high-ranking,” a pair of sources told Bloomberg. Although the measures are ostensibly in retaliation for Beijing’s efforts to scupper Hong Kong’s legislature and otherwise undermine democracy in the city, Trump is in the process of turning the screws on Xi ahead of Joe Biden’s inauguration. A recent decision to add CNOOC and SMIC to a list of companies allegedly controlled by the PLA made an already fraught situation that much worse and new sanctions would just inflame tensions further.

The always entertaining Hua Chunying had a thing or five to say about the situation Monday. “If the reports are true, I believe you can imagine China’s position,” she said. (Yes, we can, Hua.) “We strongly condemn US sanctions on Chinese personnel under the pretext of Hong Kong,” she added.

“Note already-sanctioned Hong Kong CEO Carrie Lam is now reportedly paid in cash, and has to sit on literal piles of it at home,” Rabobank’s Michael Every wrote Monday, adding that at least one Hong Kong lawmaker who went into exile found that his family’s Hong Kong-based bank accounts were frozen. “In short, on either side of this geopolitical argument –and for those caught unhappily in the middle– where, and what, one thinks is a true ‘safe harbor’ for one’s funds may need to be rapidly revised,” Every noted.

Meanwhile, Brexit talks were said to be on the verge of collapse, with Boris Johnson set to chat with Ursula von der Leyen on Monday evening in yet another “make or break” moment. The pound came under severe pressure.

There’s little utility in attempting to document every twist and turn. The narrative changes by the minute — literally. And this has been going on for more than four years. Brexit should be enshrined in every thesaurus as a synonym for “absurd.”

“The risk-off move is gathering pace as it’s all up to Boris which basically means Vegas or bust for GBP traders,” AxiCorp’s Stephen Innes remarked.

All of that was (more than) enough to relegate the best Chinese export data in years to the backburner. Shipments abroad jumped 21% in November, the most since early 2018. The $268 billion in goods shipped was a record for any single month. Imports rose a third consecutive month.

Obviously, this adds to the recovery narrative for the world’s second largest economy. That exports are not only resilient, but in fact booming, despite new containment measures instituted across western economies coping with aggressive second virus waves, speaks to a number of dynamics.

The November boom was attributed in part to trade partners stockpiling ahead of prospective new lockdowns, while electronics and medical goods continue to benefit from the pandemic. Shipments of electronics surged 25% YoY. The strong yuan was apparently no impediment, which suggests policymakers needn’t be overly concerned that currency strength will derail exports going forward.

Beijing’s trade surplus hit a monthly, all-time high in November. Donald Trump, whose 2016 bid for the Oval Office was predicated in part on a promise to “fix” America’s bilateral deficit, will leave office knowing China’s monthly trade surplus with the US hit a record high of $37.4 billion during the month he lost the 2020 election.