Chinese trade data shock

• Looks like New Year in July

• Exports fall by 90% in one month as demand slows

• Currencies relatively unaffected, USD slightly stronger

Following a lacklustre European session yesterday the attention once again switched to China and possibly the most important data out of the world’s workshop; trade data.

Yesterday’s inflation and retail sales numbers confirmed that the consumption side of the Chinese economy still needs help and this will likely come from moves within the PBOC. Given the poor data overnight we are expecting some rumours out of the market today of some form of monetary policy easing from the Chinese, although they will likely stay as rumours. That being said, we are expecting rate and reserve requirement ratio cuts through H2.

Trade data is difficult for monetary policy to influence however, especially when the currency of one of the participants is in some kind of structured regime, as China’s is. It is more about global confidence and output and China is seeing this fall.

Overnight both exports and imports fell dramatically, further confirming that nobody can hide from this global chill that is sweeping eastwards. Exports were down to 1% from 11% in June while imports also slipped to 4.3% from 6.3%.

This completes a week of really poor data from across the world, although market reaction has been muted with the dollar and haven assets slightly stronger on the day although the pressures on the European periphery had eased. Both Spain’s and Italy’s peripheral yields eased slightly but as with all these things, the interest was very slight.

GBPUSD has unfortunately given away most of the gains it made from Mervyn King stating that an interest rate cut is unlikely in the future, whilst GBPEUR is back above 1.27 following its brief flirtation with 1.25.

Data today is also fairly light and given that it is a Friday, in August, and the sun is shining the interest in FX may hit a very low level.

Have a great weekend.

Latest exchange rates at time of writing

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