Ahead of Chinese Trade and Inflation data

This week, China reports some important indicators for its economic growth as the country returned from the week-long Chinese New Year celebrations. January’s trade data are due tomorrow and Inflation is due on Friday.

The trade balance in particular is expected to see the surplus narrow sharply to $33.5 bln after it gapped out to $57.1 bln in December, the highest in 3 years.

In December, imports contracted at a 7.6% y/y rate to end the year, with exports falling -4.4% y/y. Both of those were the first declines since March 2018, and were the weakest since October 2016, probably weighed by US tariffs and weaker commodity prices. Erosion could be extended into January for those same reasons, which would be consistent with ongoing slowing in China’s domestic economy (falling imports) and the impact of the trade war with the US (drop in exports). January imports are expected to decline by 10% y/y and exports to drop by 3.2% y/y.

On Friday, January’s inflation is likely to tick up to 2.0% y/y from 1.9%, while January PPI is seen at 1.0% y/y from 0.9%.

Meanwhile from the markets’ perspective, recent comments from US President Donald Trump who suggested that he could see letting the March 1 deadline on tariffs China slide a little if the two sides were close to a complete deal, helped to underpin sentiment.