Trade surplus in China narrowed to $14.5B in November from $17.0B a month ago. During the month, growth in exports moderated to +13.8% as EU demand weakened. Growth in imports also softened, signaled slowdown in domestic activities was a result of the global economic headwind and the Chinese government's tightening measures.

As indicated in the report, exports grew +13.8% in November, easing for the 3rd consecutive month since August. Exports to the EU, China's biggest export market, increased +5.0% y/y, moderating further from a +7.5% gain in October. Sales to Germany and Italy slipped -1.6%and 23.0% respectively. Exports to Japan also slowed to +17.7% y/y in November from +19.6% in the prior month. In the US, growth unexpectedly accelerated to +17.0% from +13.9% in October. On the other hand, growth in ASEAN countries remained robust at +21.5% y/y during the month after a sharp deceleration of +14.3% in October.

Growth in imports continued to outpace exports in November, suggesting resilient Chinese growth in comparison with deterioration in global economic activities. However, the growth rate of +22.1% was a drop from +28.7% in October. Imports of crude oil, copper and iron ore eased on annual basis compared with October. However, growth in import volume for these items accelerated on, on monthly basis as a result of restocking on falling prices. It's hard to expect the situation to sustain in coming months as the slowdown in domestic investment will likely reducing demand for commodities.

As inflationary pressure eased and trade surplus narrowed in China, the pressure on RMB appreciation will likely be moderated. In the meantime, the government would find it necessary to shift the focus from controlling inflation to managing robust growth for soft landing.

Elsewhere in Europe, headline inflation in the UK eased to 4.8% y/y in November from +5.0% a month ago. Core CPI fell to +3.2% during the month from +3.4% in October. The market had anticipated a milder dip to +3.3%. Inflation will likely fall further in coming months as the VAT hike implemented in January 2011 will not have impact on inflation in the coming year. ZEW confidence data in the Eurozone delivered pleasant surprises in December. The 17-nation region economic sentiment index surprisingly improved to -54.1 in December from -59.1 a month ago. The reading in Germany alone recovered to -53.8 from -55.2 in November. However, the current situation index for Germany unexpectedly slipped to 26.8 from 34.2 in November.