Bumper Chinese trade surplus fails to support region's equity benchmarks

Tuesday, October 13, 2015

Chinese trade data released overnight was cause for further investor unease as signs of slowing growth saw Asian equity markets trade under pressure. Despite a slight increase in the trade surplus to $60.34bn in September from $63.24bn the previous month, a sharp fall in imports dampened the mood. Imports fell 20.4% y/y in September, accelerating the 13.8% decline from the previous month and coming in markedly worse than the 16% decline expected by market participants. Investors were offered partial relief from better than expected export data which fell 3.7% y/y in September, less than the 6.0% y/y decline anticipated. In onshore Chinese yuan terms imports fell 17.7% y/y while exports fell 1.1% y/y with investors taking some comfort in a strong trade surplus which will ease pressure on capital outflows at a time where global investors are pulling out of emerging markets back into developed economies.

It’s been a turbulent H2 2015 so far for the Chinese economy as policymakers in Beijing pull out all the stops in an effort to reverse the steady decline in almost all major indicators and trading conditions aren’t expected to ease during the final quarter of the year. The PBOC will have their work cut out as they continue to monitor market conditions after opting to raise the renminbi reference rate by 0.28% against the dollar, strengthening it for the eighth straight session towards 6.3231.

As if to prolong the uncertainty surrounding the path US interest rates will take when the Fed do eventually decide to raise them, a senior Fed policymaker has voiced her concerns regarding a rates rise that comes too soon. Lael Brainard, a member of the Fed’s board of governors cited global macro risks and inflation as direct threats to the US economy, urging the central bank to hold off from tightening monetary policy. The dovish comments further highlights the divide at the US Fed with some officials and indeed members of the FOMC decidedly hawkish, commenting on a robust labour market, while others have adopted a dovish stance, arguing that officials should hold out for more concrete data. The dollar weakened for the third straight session yesterday against a basket of major currencies, trading towards 94.619 at one point throughout the day. Activity this morning has seen a continuation of this downward pressure with the dollar index revisiting yesterday’s lows early on this morning.

CNY strengthening against dollar after PBOC intervention

CNY Curncy China Renminbi Spot 2015 10 13 08 12 12

Dollar index slips on uncertainty around US interest rates

DXY Curncy DOLLAR INDEX SPOT 2015 10 13 08 27 47

Events for today

0230

CN

Sep

Imports/ Exports

0001

UK

Sep

BRC Retail Sales

0700

DE

Sep

CPI

0930

UK

Sep

CPI & RPI

1000

DE

Oct

ZEW Survey

1000

EZ

Oct

ZEW Survey

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