ES Dripping On Ugly Asian Data
It appears that Asia is not done tightening. In a surprising move South Korea's central bank on Friday raised its
policy rate by a quarter point which was against market
expectations and comes after rates were held steady for past two months. From Bloomberg: "South Korea’s Kospi Index (KOSPI) fell 0.7 percent, erasing a 1.1 percent gain, after Governor Kim Choong Soo boosted the benchmark seven-day repurchase rate to 3.25 percent from 3 percent, following quarter-percent increases in January and March." In other news, the beancount for China's GDP appears to be slowing following a smaller than expected trade surplus: "The Shanghai Composite Index slid 0.4 percent after China’s customs bureau said exports rose 19 percent from a year earlier and imports climbed 28 percent. The compared with the median forecasts for a 20 percent gain in overseas shipments and a 22 percent increase in exports" (we will have a full breakdown of the Chinese trade numbers tomorrow). Too bad the inflation in China is not slowing to go with its GDP, and the latest CPI print is now expected to be a record 5.5%. And completing the pain out of Asia was the deplorable Indian IP number which tumbled to just 4.4% YoY. As the chart below shows futures are definitely not liking this latest set of data (but, but, the services ISM was not a total disaster...) and the EURUSD is back to intraday lows. Europe opens next and Europe will not be happy.
And Goldman's take on the disappointing China trade data:
- The slowdown in exports growth is consistent with the moderation in external demand growth.
- The rebound in imports growth was mainly because of the very low base. Its underlying growth momentum remains weak.
- The trade surplus continued to rise as it is typically the case when the economy slows on domestic policy tightening measures.
Exports growth decelerated to 19.4% yoy in May (our forecast: 20.0% yoy, Bloomberg consensus forecast: 20.4% yoy), down from 29.9% yoy in April. The implied month-on-month; seasonally-adjusted; annualized (s.a. ann.) growth rate was 23.0%, down from the 26.1% growth recorded in April.
Imports growth strengthened to 28.4% yoy in May (our forecast: 26.0% yoy, Bloomberg consensus forecast: 22.0% yoy), up from 21.8% yoy in April. On a mom s.a. ann. basis, imports growth was 35.6% in May, up from the -34.9% growth recorded in April.
The level of trade surplus came in at US$13.0 billion (our forecast: US$16.6 billion, Bloomberg consensus forecast: US$19.8 billion), up from US$11.4 billion in April.
The slowdown in exports growth is consistent with the moderation in external demand growth as indicated by the recent reading of our proprietary Global Leading Indicator (GLI) which has fallen to around 0% on a sequential basis in May. Besides, the export orders sub-index of the official PMI has also been trending down in recent months (see Exhibit 7).
On the other hand, the rebound in imports growth was mainly because of the very low base (April’s imports growth was exceedingly weak). We believe its underlying growth momentum has been weakening as a result of slower domestic demand growth. This weakening trend is better reflected in the quarter-on-quarter growth which has dipped into negative territory from triple digit levels at the start of the year.
The trade surplus continued to rise as it is typically the case when the economy slows on domestic policy tightening measures (for more discussions on this, see Asia: No stagflation but not much room to ease policy yet, Asia Economics Analyst 11/10, June 10, 2011). This is mainly because the volatility of real domestic demand growth in China is typically larger than that of China’s main trading partners. Furthermore, because of the significance of China in the global markets especially in some hard commodities, slowdowns in real demand are typically associated with moderation in some import prices as well. This cyclical effect is likely to continue until domestic demand growth rebounds as a result of expected policy normalization in 2H2011. Besides, there is also a seasonal factor at play as China tends to get a low trade surplus/deficit at the start of the year and rising surpluses within the year. This seasonal factor likely contributed to the rise in the trade surplus over the past two months and will support the level of trade surplus at a relatively high level even when domestic demand growth rebounds in 2H2011 and continued currency appreciation (we expect the USD/CNY to be 6.40, 6.31 and 6.12 on a 3, 6 and12-month basis respectively).
h/t Capital Context
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