Surplus Falters As Chinese Trade Rebounds

Daily Analysis - 08/12/2016

China Exports Climb Back Into Positive Territory for First Time Since March

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In an optimistic sign that the ongoing losses in the Yuan are starting to have a positive impact on trade, the latest data pertaining to imports and exports show that the devaluation is helping to stimulate business activities.  However, the headline optimism was overshadowed to a degree by a falling surplus as dollar-denominated trade remains in contraction on an annualized basis.

Chinese Trade Shows Further Improvement


After a rollercoaster year for Chinese trade, November proved to be a positive month for both imports and exports as each respective figure climbed back into positive territory.  Exports managed to show a 0.10% gain on an annualized basis, beating expectations of a -5.00% contraction as a cheaper Yuan helped trade recover in Yuan-denominated terms.  Imports rose by 6.70% over the same period, outperforming estimates of a -1.30% decline.  The trade balance slipped from $49.06 billion to $44.61 billion during the month of November, driven primarily by the growth in imports exceeding the comparable export figure.  The weaker Yuan is helping trade to recover, however, in dollar terms, trade remains sizably smaller than a year earlier.  Now the attention will shift to inflation and the pace of capital outflows as the offshore Yuan resumes weakening against the US dollar.

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Japanese GDP Revised Lower


Amid widespread expectations that third quarter gross domestic product would be upgraded in the latest readings, economists were disappointed after both quarterly and annualized growth figures were revised lower.  Net trade added less to growth than previously anticipated as domestic demand remained largely flat.  While household spending improved modestly, quarterly growth fell from the 0.50% initially reported in the advance GDP reading to 0.30% as the year over year figure fell to 1.30% from the 2.20% recorded during the preliminary estimate.  Part of the drag on trade likely came as a result of a stronger Yen.  However, the reversal over the last two months may spur a pickup in exports during the fourth quarter thanks to a cheaper currency.  After falling as much as 70 pips following the GDP announcement, USDJPY rebounded and is trading mostly unchanged on the session.

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Bank of Canada Leaves Rates Unchanged


In a widely anticipated move, the Bank of Canada opted to leave the benchmark interest rate unchanged at 0.50% during the latest monetary policy decision.  Although the Central Bank did mention that economic conditions are strengthening in the economy, there is a lot of looming uncertainty, especially ahead of next week’s decision from the US Federal Reserve.  Furthermore, with inflation below the levels targeted by policymakers, accommodation will likely remain in place until consumer prices rise from the current 1.50%.  Besides inflation, business investment and non-energy exports continue to drag on economic activity.  Despite increased government spending and improvements in the unemployment rate, significant slack remains in the economy according to officials.  The Canadian dollar has continued to appreciate, with USDCAD still on the retreat after Wednesday’s session.

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UK Industrial Production Shrinks at Fastest Pace in years


Expectations were high that the substantial Pound devaluation would be far reaching in its impact on the UK economy.  However, as the latest manufacturing and industrial output figures show, the end of the year rally looks like it might not materialize after the surprising contractions in each respective figure.  The -1.30% decline in industrial activity was the largest fall in 4-years and predominantly driven by the temporary shutdown of the Buzzard oil field located in the North Sea.  With hopes pinned on the UK expansion continuing through the end of the year, the latest figures pertaining to the manufacturing and industrial sectors could put a damper on forecasts, especially with each of the annualized figures still in negative territory over the last 52-weeks.  The Pound is mostly flat on the session against the US dollar after the pair rebounded moderately from Wednesday’s session lows.

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