Digesting China Trade, Singapore Q2 GDP and upbeat Powell comments on
US economy, awaiting US Import Prices and Michigan Confidence, Fed and
BoE speak, as Trump continues visit to the UK
- China Trade: sharp deceleration in Imports accounts for much larger
than expected overall Trade surplus, and record surplus with US;
Soybeans, Oil and Copper accounting for large part of miss due to
a variety of sector specific factors
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** EVENTS PREVIEW **
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Very topically amid all the tensions, China's Trade data tops today's data agenda as Trump visits the UK, and the aftermath of what can only be described as a very ugly case of a US president blackmailing a UK prime minister with his threats in respect of a post Brexit FTA (it matters not that the Chequers trade proposals are indeed extremely deficient) .... and apparently he cannot see why there has been so much public protest, about which he is upset ... as the biblical saying goes 'as ye shall sow, so shall ye reap'. Otherwise there is the Singapore advance Q2 GDP to digest (somewhat below forecasts), while the US has Import Prices and preliminary Michigan Confidence. The events schedule is relatively thin with Fed speaker from Kashkari and Bostic (both doves) and BoE's Cunliffe (also a dove), as Powell's upbeat comments on the US economy are digested ahead of next week's semi-annual testimony. The US earnings season also kicks off today with the usual run of financials - Citi, JPM, PNC & Wells Fargo. The week ahead has plenty of major data in the US (Retail Sales, Industrial Production, raft of housing numbers, NY & Philly Fed), China (Q2 GDP, Retail Sales, Industrial Production, FAI) and UK (labour data, CPI, PPI and Retail Sales, PSNB), Japanese and Canadian CPI and Japanese Trade, while Powell's semi-annual testimony is accompanied by the Fed's Beige Book, as the US Q2 earnings season cranks into gear quite swiftly.
In respect of China's Trade numbers, there is little doubt that the record surplus with the US will inevitably get top billing, with a good deal evidence to suggest that China's exporters have been front loading exports to beat the imposition of tariffs, implying a relatively sharp drop in coming months. However the more relevant angle to explore is probably why the miss on imports at 14.1% y/y vs. expected 26.0%. To a certain extent, it underlines the sharp rises seen in a number of commodity categories in May heavily overstated underlying trends, though there are specific factors in a number of categories, though a sharply weaker CNY on the month should be borne in mind. On crude oil, a drop in demand from so-called 'teapot' refiners is the inevitable clampdown on tax avoidance in the sector, and the well documented drop in margins. On the perhaps most surprising drop in Soybean imports (June 8.70 Mln T vs. May 9.68 Mln T), this has as much to do with a very sharp build-up in stocks in recent months (partly due to early year logistics related disruptions to deliveries from Brazil, which has left many crushers struggling to process existing stocks, as much as the well documented diversion of shipments from the USA to other destinations, and in truth the drop had been largely anticipated. As for the Copper import weakness, this was mostly attributable to the negative arbitrage between the Shanghai Futures exchange and LME copper prices driving imports down, and the recent fall in the CNY is likely to exacerbate this further in coming months. By contrast the environmental clampdowns on the use of 'dirtier' domestic coal has forced energy producers to sharply increase Coal Imports, thus helping to assuage concerns that they might not be able to meet elevated levels of demand. Overall the data still point to a robust level of growth, as attention shifts in statistical terms to next week's Q2 GDP (median 1.6% q/q vs. Q1 1.4%, unchanged at 6.7% y/y) and monthly activity data.
From Marc Ostwald
