Release: China Trade Balance (December)
Consensus Forecast: $8.3B
Date/Time: 1/09 - 8:30PM* ET (01:30 GMT, 1/10)
China's Trade Data to Give Insight on Global Trade - A Key For Risk Sentiment:
The exact time and date of China's trade balance release is still a bit in the air but it's important to be prepared for this report as it is a key indicator for general risk sentiment as it does a good job of giving us timely information on global trade flows.
The more that China exports to the globe the more foreign demand there is, and the more that foreign consumers are spending on Chinese exports - a sign of stronger global trade.
At the same time, China has been trying to re-balance its economy focusing more on domestic consumption and if we see a pickup in imports that helps those countries exporting to China such as Australia and New Zealand.
The consensus forecast currently by economists is for the trade surplus in China to weaken for the December period, to $8.3 billion compared to the $14.5 billion surplus seen in November.
That would be the weakest reading in China's trade balance since March of 2011.
3 Key Scenarios Scenarios for the Release:
Because of their economies' reliance on Chinese imports of their exported goods the Australian and New Zealand dollars may be most sensitive to the Chinese trade data.
Weak Release - Trade Suplus Narrows By More Than Expected - A reading that comes in below that $8.6 billion figure - especially if caused by a sharper drop in exports would way on risk sentiment in Asia and could the work to pressure equities, commodities, and the AUD and NZD. If the weaker surpluses due to a rise in imports then that would likely hope to mitigate the negative print and could actually help to bolster commodity currencies.
Middle of the Road - Expected Drop in Trade Surplus -If we see a status quo release in which the trade surplus shrinks, but by that amount expected it should also way on risk sentiment and show that global trade has weakened as a result of the European sovereign debt crisis. again we would be looking at the Australian and New Zealand dollars against the US dollar for an immediate reaction.
From Bloomberg: A diminishing surplus may damp liquidity growth, giving China's central bank more scope to cut banks' required reserve ratio. People's Bank of China Governor Zhou Xiaochuan said yesterday the nation must be ready to combat possible global economic shocks. JPMorgan Chase & Co. sees a further cut in the reserve ratio as soon as this week.
So far this week, the market hasn't really taken a direction in terms of risk sentiment and so this could be the fundamental catalyst for the market to either become more bullish or bearish.
Strong Release - Exports Beat Forecasts - If we see the trade surplus that beats expectations that can help ease some of the concern around faltering global growth as a result of Europe and in that case we see some stronger risk appetite and gains in Asian equities, and a rise in the AUD and NZD vs the USD. Again the higher surplus shoudl be led by higher exports and not declining imports which would also act to bolster the overall surplus.
PBOC Focus Switches From Inflation to Faltering Growth, Another RRR Cut Coming?
We know that the People's Bank of China (PBOC) as well as Chinese authorities have switched their focus from one focused on inflation to one that is focused on the slowdown in growth.
The step of lowering the bank reserve ratio requirement (RRR) which should help to free up lending.
We saw evidence of that by a pickup in new loans lend out by banks in December, which came in above expectations.
From BusinessWeek: China's stocks rose the most in three months after new lending and money supply exceeded estimates in December, boosting speculation the government is relaxing monetary policies to bolster economic growth.
Chinese new loans totaled 640.5 billion yuan ($101 billion) last month, the highest amount since April, the People's Bank of China said yesterday. That exceeded the estimates of all 18 economists surveyed by Bloomberg. M2, a measure of money supply, rose 13.6 percent, the fastest pace since July, it said. That compared with the 12.9 percent median of 18 estimates.
J.P. Morgan Chase believes that a further cut in the RRR may be possible as early as this week as we anticipate Chinese consumer prices and producer price data to show inflation cooling further. Other analysts also highlighted the possibility that the bank will act ahead of the Chinese New Year.
From CNBC: Three of the four analysts CNBC spoke to, believe the central bank could slash the reserve requirement ratio (RRR) by up to 50 basis points before the Chinese New Year holiday, which falls on January 24th and 25th. One of the analysts said a RRR cut could come as early as this week.
One area of concern for Chinese authorities is the manufacturing sector where which managed to rebound into positive growth territory in December but that followed a contractionary month in November.
Both the government and HSBC manufacturing PMI's can be seen on the right.
Chine officials are concerned with faltering growth as the country continues to see a migration of people coming from the countryside to the cities to find work.
The government has a social understanding that there will be jobs available. The payoff for the political class is that Chinese citizens, for the most part, will stay out of the political realm if their there is enough growth to provide the needed jobs. Therefore, a considerable slowdown in growth could mean civil unrest and authorities will do what they can to avoid that scenario including further cuts to the RRR and perhaps eventually, lowering the 1-year lending rate.