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Global Trade In Freefall: South Korea Exports Crash Most Since 2009

Tyler Durden's picture




 

While the market's attention overnight was focused on China's crumbling manufacturing and service PMI, data which was already hinted in the flash PMI reports earlier in August, the real stunner came not from China but from South Korea, which last night reported an unprecedented 14.7% collapse in exports, far worse than the -5.9% consensus estimate, and more than 4 times worse than July's 3.4%.

The number is critical because not only do exports account for about half of South Korea's GDP (with Samusng alone anecdotally accountable for 20% of the country's GDP), but because it also happens to be the first major exporting country to report monthly trade data. That makes it the perfect barometer of global trade flows, or as the case may be, the canary in the global trade coalmine. It also confirms what we reported just one week ago when we said that "Global Trade Is In Freefall".

 

The carnage in Korean trade is unmistakable in the following Barclays chart:

Putting South Korea plunging trade in context, this was the worst monthly decline since August 2009, and was coupled by an 18.3% tumble in imports, the biggest drop since February. Worse, South Korea may soon run into a true Black Swan: a trade deficit: in August, the country's trade surplus tightened to just $4.3 billion, one third worse than tha $6.1 billion expected, and nearly less tthan half the $7.7 billion surplus in July, suggesting South Korea may be forced to dip into its reserves next, or finally engage in what many have said is long overdue: the next Asian currency devaluation as China's FX war spills over to what may be the most important harbinger of global trade.

Furthermore, with one quarter of total Korean exports going to neighbor China, this trade data is a far more accurate indicator of what is happening in China's economy.

Kim Doo-un, economist at Hana Daetoo Securities in Seoul, told Reuters that Korea's gloomy picture will not improve unless China's economy manages to rebound: "The state of the Chinese economy is crucial to South Korean exports but we will not see meaningful improvement there before the end of this year,"  Kim added he sees one more rate cut in South Korea by end-2015 to boost economic activity at home. South Korea's current policy rate stands at 1.50 percent.

We, on the other hand, anticipate far more aggressive devaluation by the BOK, along the lines of what China recently conducted.

Barclays digs deeper into the abysmal data:

Autos and vessel shipments fell sharply in August, exacerbating the weak underlying trend in petrochemicals, minerals and steel and masking a tentative pick up in electronics. Auto shipments were particularly disappointing, falling 32.4% y/y in August, despite a rising pipeline of new launches. Vessel deliveries also dropped sharply (-24.5%) in August, paying back the one-month surge (+56.7%) in July. Vessels and autos combined made up 4.3pp of the 14.7% headline fall. If we include petrochemicals, minerals and steel, almost 11.4pp of headline fall can be explained. One silver lining in August was that amid the declines, there are signs that electronics shipments may be bottoming out.  Exports of mobile devices and PCs jumped 14.5% and 8.6%, respectively, after declining in July. The drag in household electronics shipments also narrowed. Semiconductors, managed to grow 5.7% (July: +6.2%; June: 2.9%). Ominously, shipments to China, Korea’s largest trading partner, fell more sharply in August, falling 7.6% and extending the 6.4% drop in July, likely owing to slower sales of handsets and autos, and reflecting reduced Chinese purchasing power after the CNY was devalued after 11 August.

Another breakdown showing the drop across virtually all product cateogries comes courtesy of the Y-Y chart from Goldman:

The geographic distribution of the weakness was as follows: shipments to Europe (-7.7%), Japan (-20.9%) and ASEAN (-3%) also remained sluggish in August, although US shipments (+3.4%) did marginally better.

What does this mean for the global economy, aside from the obvious:

Our concern is with the jump in the inventory/shipment ratio to 1.29x in July (June: 1.29x; April-May: 1.27x; March: 1.24x), which leaves it a shade below the Global Financial Crisis record in December 2008 (1.30x). High inventories in both supply chains are likely to weigh on IP in the months ahead, a point underscored by the weak sub-50 Nikkei PMI readings (August: 47.9; July: 47.6)

As for what this means for Korean monetary policy, no surprise here: more easing.

We now expect the BoK to deliver a further 25bp rate cut in Q4, most likely in October. We see an outside chance of an earlier move, at the 11 September meeting, but we continue to believe that the BoK will prefer to move after the initial delivery of the fiscal supplementary spending and the US FOMC meeting on 17-18 September. Also, we now expect the first rate hike in Korea in Q3 16, rather than in late Q1 16. Moreover, with key indicators for the services economy showing a healthy post-MERS rebound, we believe the urgency to act immediately is still low. We believe the existing focus on engineering a weaker KRW bias – possibly by stockpiling essential commodities such as fuel – will remain.  

Of course, further easing by South Korea, or even an outright devaluation, means the ball will then be in the court of Korea's trade competitors, who will then be compelled to match the Korean move with further easing (or devaluation) of their own, and so on, until one can no longer sweep the global recession under the rug. It isn't called the global race to the bottom for nothing.

To be sure, all of this could have been avoided if as we have sarcastically been commenting for the past year, global central banks had learned to print trade.

For now however, we sit back and wait as South Korea becomes the latest country to join the global currency devaluation bandwagon. We won't have long to wait.

 

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Tue, 09/01/2015 - 08:10 | 6494454 Bill of Rights
Bill of Rights's picture

TRANS are taking it on the chin, but with a manipulated stick save last week.

 

https://www.tradingview.com/x/W0dP4StM/

Tue, 09/01/2015 - 08:36 | 6494524 tc06rtw
tc06rtw's picture

     WATCH  FOR  FALLING
         STOCKBROKERS !!

Sun, 10/04/2015 - 05:03 | 6627474 smartmil
smartmil's picture

Despite accounting for less than 20% of world output, China and South Korea made up 40% of all trade surpluses. Both countries have an outsize influence on the inter-country flow of goods, which should worry every single investor. What happens if their exports continue to fall?

Tue, 09/01/2015 - 08:10 | 6494455 ParaZite
Tue, 09/01/2015 - 08:11 | 6494456 TideFighter
TideFighter's picture

I like to give a shout out for my favorite Plunge Protection Team this morning. Get your coffee and donuts, another long day coming, you bastards.

Tue, 09/01/2015 - 08:30 | 6494498 VinceFostersGhost
VinceFostersGhost's picture

 

 

Might have to get on your knees to John Boehner.....load up on heavy fuel.

 

Who....BTW....does not have the votes to be speaker any longer. Can we please just get this done?

http://www.politicalstandards.com/gop-congressman-confirms-john-boehner-does-not-have-the-votes-to-remain-speaker-john-hawkins-right-wing-news/

Tue, 09/01/2015 - 08:56 | 6494594 BarkingCat
BarkingCat's picture

They need to get this establishment asshole out and fast. I hope he gets the taste of his own medicine and gets no assignments whatsoever.
Best yet, I hope he loses reelection and then loses whatever skim he managed to get in the next crash.
I want this bastard to live the remaining days of his life in poverty.

Tue, 09/01/2015 - 08:40 | 6494531 OpTwoMistic
OpTwoMistic's picture

Margin calls for BTFDs coming/

Tue, 09/01/2015 - 08:11 | 6494457 Callz d Ballz
Callz d Ballz's picture

Must not have got the memo.

Tue, 09/01/2015 - 08:11 | 6494459 Tinky
Tinky's picture

Ah yes, that sweet intersection at which reality begins to overshadow the propaganda.

Look out below!

Tue, 09/01/2015 - 08:20 | 6494487 Element
Element's picture

Yes Tinky, the only question is how far we plunge. Demand for oil was not down for nothing, and five years of macro data slide was crossing over in mid-2015, to the negative side. We could see that a year out, so a global recession was quite predictable second half 2015. And not like they can say, "no one saw it coming", because only an incompetent cretin or true-believer idiot could have possibly missed it.

Tue, 09/01/2015 - 09:08 | 6494656 SmallerGovNow2
SmallerGovNow2's picture

Missed it?  Like all the CNBS wanks?

Tue, 09/01/2015 - 08:13 | 6494461 Dr. Engali
Dr. Engali's picture

So is bad news still bad? Or is good news bad? Or bad news good? I'm so confused. Tell me what to do Gartman.

Tue, 09/01/2015 - 08:15 | 6494475 Bernoulli
Bernoulli's picture

Buy stocks, of course! And remain pleasantly bullish.

Tue, 09/01/2015 - 08:19 | 6494489 TideFighter
TideFighter's picture

<<< bad news is bad

<<< bad news is good

Tue, 09/01/2015 - 08:40 | 6494532 SheepDog-One
SheepDog-One's picture

Gartman sez- You must buy while selling.

Tue, 09/01/2015 - 08:42 | 6494541 JamaicaJim
JamaicaJim's picture

Gartman stand on toilet full of shit recommendations

He hi on pot

Tue, 09/01/2015 - 08:13 | 6494462 CheapBastard
CheapBastard's picture

Robust! They must be taking cues from Barry on how to stimulate their economy.

Tue, 09/01/2015 - 08:14 | 6494468 Bernoulli
Bernoulli's picture

How do you say "ho li fuk" in south korean?

Tue, 09/01/2015 - 08:30 | 6494509 Quintus
Quintus's picture

Ho re fuku

Tue, 09/01/2015 - 09:39 | 6494805 NoJ
NoJ's picture

Ho Ree Pukyo

 

No 'f' sounds in korean and 'yo' is just a general polite ending attached to everything.

Tue, 09/01/2015 - 08:14 | 6494471 SillySalesmanQu...
SillySalesmanQuestion's picture

When the walls come tumblin' down
When the walls come crumblin' crumblin'
When the walls come tumblin' tumblin' down

Tue, 09/01/2015 - 08:15 | 6494472 FranSix
Tue, 09/01/2015 - 08:16 | 6494477 stant
stant's picture

This is not the Tuesdays we have been acustomed to

Tue, 09/01/2015 - 08:22 | 6494494 VinceFostersGhost
VinceFostersGhost's picture

 

 

Welcome to bizarro Tuesday.

Tue, 09/01/2015 - 08:29 | 6494504 gwar5
gwar5's picture

Can't wait 'til thigh-gap Thursdays.

Tue, 09/01/2015 - 08:16 | 6494478 ejmoosa
ejmoosa's picture

The CBs cannot save everyone forever.  Sooner rather than later you will see them allow selective casualties of this economic war.  

Then the fun will begin in earnest.

Tue, 09/01/2015 - 08:17 | 6494481 TideFighter
TideFighter's picture

After O'Puss gets back from naming McKinley to Denali, he will change DC to Nairobi. 

Tue, 09/01/2015 - 08:23 | 6494495 VinceFostersGhost
VinceFostersGhost's picture

 

 

Just be glad he's getting the important work done.

 

Could I borrow a steaming hot cup of /Sarc?

Tue, 09/01/2015 - 08:37 | 6494527 Monetas
Monetas's picture

Cape Kennedy didn´t stick ?

Tue, 09/01/2015 - 09:15 | 6494689 Ward cleaver
Ward cleaver's picture

Before coming back after eliminating another historic white male from history, Dear Leader is going to blow up Mt. Rushmore. 2020 president elect Kanye will be in charge of replacement headstones. Hope everyone has dual citizenship

Tue, 09/01/2015 - 08:18 | 6494484 TheMerryPrankster
TheMerryPrankster's picture

because green shoots

unexpectedly strong ongoing recovery

trading liberty for security

we must

we must

we must increase our busts.

 

go long monetary insanity and global economic propaganda.

also hold some scotch and water

Tue, 09/01/2015 - 08:35 | 6494518 SmedleyButlersGhost
SmedleyButlersGhost's picture

Please tell me the water is for washing up or a hangover - not for diluting your scotch

Tue, 09/01/2015 - 08:40 | 6494534 Monetas
Monetas's picture

In North Korea .... a cup of hot water .... is a luxury !

Tue, 09/01/2015 - 09:41 | 6494814 tc06rtw
tc06rtw's picture

 
  W.C. Fields  used it for a finger bowl.

Tue, 09/01/2015 - 08:18 | 6494485 Victor E. Overbanks
Victor E. Overbanks's picture

See if you can spot the economic stimulation in this video: https://www.youtube.com/watch?v=rN-ahPbm0CQ

Tue, 09/01/2015 - 08:18 | 6494486 cpnscarlet
cpnscarlet's picture

Gold and Silver were on a nice rise this morning.

NOT ALLOWED - here comes the whippin' stick.

This Korea news must be gold-negative. Wait...all news is gold negative.

Tue, 09/01/2015 - 08:45 | 6494549 MATA HAIRY
MATA HAIRY's picture

gold is a commodity..we are in a commodities crash

Tue, 09/01/2015 - 08:22 | 6494493 buzzsaw99
buzzsaw99's picture

wi tu lo

Tue, 09/01/2015 - 08:27 | 6494500 Monetas
Monetas's picture

Yu tu hi ?

Tue, 09/01/2015 - 08:41 | 6494535 JamaicaJim
JamaicaJim's picture

yu too whacko

Tue, 09/01/2015 - 08:52 | 6494563 Monetas
Monetas's picture

yu tu blacko ! 

Tue, 09/01/2015 - 08:24 | 6494497 gwar5
gwar5's picture

Gonna need a bigger helicopter.

Tue, 09/01/2015 - 08:50 | 6494564 Winston Churchill
Winston Churchill's picture

S61 can take 10 tons if you ignore the safety margin.

Tue, 09/01/2015 - 08:27 | 6494501 rsnoble
rsnoble's picture

Eat, drink and be merry while you can.

Tue, 09/01/2015 - 08:29 | 6494505 Monetas
Monetas's picture

KIA Souls will be on sale ---- not rikely ?

Tue, 09/01/2015 - 08:47 | 6494513 Monetas
Monetas's picture

Koreans are more like Japanese .... than stupid Chicoms .... even some of their characters are interchangeable .... like the parts of a Winchester repeater .... primitive Chinese still use cave wall stick pictures .... not yet a "digital" alphabet !

Thu, 09/03/2015 - 11:50 | 6504581 Max Steel
Max Steel's picture

hasbara your mum is calling ya . 

Tue, 09/01/2015 - 09:00 | 6494522 John Law Lives
John Law Lives's picture

Who needs global trade when we have a printing press and Little Kevin Henry...

FUBAR.

Tue, 09/01/2015 - 08:41 | 6494537 youngman
youngman's picture

But now watch the Politicians try to add Import tarrifs as a way to SAVE their economies.....just like the 1920s....

Tue, 09/01/2015 - 08:42 | 6494538 Panic Mode
Panic Mode's picture

Korean econmy in gangnam style.

Tue, 09/01/2015 - 08:42 | 6494540 Caveman93
Caveman93's picture

I see KIA's everywhere as of late. Must be a fire sale.

Tue, 09/01/2015 - 08:55 | 6494585 Monetas
Monetas's picture

The KIA Soul .... is the biggest box .... for your bucks !

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