SINGAPORE, SINGAPORE -- (Marketwired) -- 06/11/13 -- In the FXPRIMUS Market Brief of The Week for 10 June, leading global foreign exchange trader, educator and author Mario Sant Singh, looks at China.
Key Events to Focus On This Week
-- Full set of weak data from China over the weekend, such as Consumer Price Index (CPI), Trade data and aggregate financing, etc.-- Bank of Japan (BoJ) press conference-- Reserve Bank of New Zealand (RBNZ) rate decision-- Australia's labor data
Key Events Last Week
-- U.S. Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) unexpectedly dropped to 49.0 from earlier 50.7-- Reserve Bank of Australia (RBA) kept Official Cash Rate (OCR) at 2.75%, tone remains dovish-- Trade surplus was much lower in April at AUD 28m compared to previous AUD 56m-- Australia's 1Q Gross Domestic Product (GDP) grew 0.6% QoQ, lower than forecast at 0.8%-- European Central Bank (ECB) kept rate at 0.5% with no "stimulus details" in press conference-- U.S. Non-Farm Payroll (NFP) expanded 175k from earlier 149k, while unemployment slightly jumped to 7.6%
Stimulus effect fades as Chinese data starts reflecting negative growth momentum
After China released its full set of economic releases in May, it confirmed slow growth momentum in 2Q and toward the end of the year. Key data, such as Inflation, Trades and Aggregate Financing, suggested weak global and domestic demand at best.
To view figure 1, please visit the following link:
Weak global demand limited Chinese overseas shipping activities in May, cracking down overstated exports figures in previous months, based on imbalanced figures between other countries' imports and China's exports.
There are not many measures China could take to boost global demand, unless they excise massive stimulus as they did in Spring 2009 and Winter 2013. However, the chances of that are close to zero. Meanwhile, limited options to prevent the economy from falling further could be either:
1. Further loosening monetary policy, such as injecting more liquidities, or2. Deregulating social financing activities for only a short period, since rising housing prices and increased overdue debts trimmed credit expansion.
Story of inflated exports
Amazing exports growth in 1Q was probably due to frauds made by Chinese enterprises, aiming to increase inflow from overseas by escaping the foreign exchange capital control.
There are increasing possibilities that many stocks shift between China and Hong Kong by taking advantage of the special trade zone relationship. This kind of pattern boosts exports (since goods from HK to China counts as exports) without import duties.
Looking at China's imports tax YoY and China's imports YoY, we can see that the usual tandem movement broke in 1Q this year.
To view figure 2, please visit the following link: