What To Expect From China’s Trade Balance

Sourced from: https://www.countingpips.com/2019/07/what-to-expect-from-chinas-trade-balance/

The Components

Expectations are for Chinese exports to get dropped -7.7% since the previous calendar year.

This would imply that the expectations of an increase in the trade surplus would not be fulfilled.
With the drama of the continuing US-China trade problem getting all the headlines, let us drill down to the underlying statistics to get a better feeling of the way the market can respond to the upcoming information release. The figure is additional important this time around as it is the last important data before the release of China’s Q2 GDP next Monday.

By Orbex

What We’re Expecting

China’s trade balance has a history of demonstrating extreme volatility across the close of the year. This is due to the effect of vacations in China and in their major export markets. The balance then flattens for the remainder of the year. If this level should happen to solidify about the 40B mark, it might be the initial increase in annualized trade equilibrium since 2014.
The Chinese government has lately been discussing the matter of professional services exports.
Exports rose by a modest 1.1%, while imports fell precipitously by -8.5%. This drop was mostly seen in metal products with a significant drop in copper and iron ore. (At precisely exactly the identical time, iron ore and copper prices were reaching the peak of the cycle up to now.)

Of course, the entire point of trade is to make money. Along with the issues about the cash flow would be those which drive the currency markets.

Last monthwe had a surprise with the transaction balance doubling expectations. This has been driven mostly by the disconnect between both imports and exports.
If exports slip again, this could place more pressure on the yuan. Consequently, this would create the carry trade less intriguing, opening the possibility of a vicious cycle.

China’s trade balance tends to rock markets anywhere! So even in case you don’t follow the Yuan, this is still an important piece of data to keep tabs on.
With the continuation of the trade war, along with the Fed less likely to lower rates as aggressively after the June NFP, there’s growing pressure for Chinese holders to curtail their resources and need dollars.

Cash Flows

To make things worse, the decline of almost 11% since March in the Yuan has left this trade unappetizing if not outright unprofitable.
The increase in exports might be somewhat one-off, though.  The reason behind the beat of expectations is that companies were hurrying to receive their earnings through customs before Trump’s tariff hikes would take effect. Now the two nations are once again at a truce, the export number might slide. This is because imports which would otherwise have left during June were accounted for in May.
The Fed was engaged in a cycle. Meanwhile, its Chinese counterpart has been reluctant to follow suit because of weakness in the national market. That differential has been closing.
The consensus among analysts is that the June equilibrium of trade will come in at a surplus of $44.7B, up from the prior month’s $41.7B. This might bring it back in line with the average it has been maintaining for the past few years prior to the transaction war began.