Middle East and impact on oil
City Index June 10, 2012 9:20 AM
<p>We fail to see how a US$31.7bn trade surplus points to Chinese weakness. The number was way ahead of market estimates which pointed to a […]</p>
We fail to see how a US$31.7bn trade surplus points to Chinese weakness. The number was way ahead of market estimates which pointed to a figure near US$21bn. We spent a good amount of time digging around to make sure we didn’t miss anything fundamental, but after pondering, we sit trying to figure out how such a healthy trade surplus is a weak number.
The composition may have missed market estimate, sure imports were up only 6.3% compared to a forecast of 12.7% but how is this exactly a bad thing or a sign of weakness? China is the world’s largest manufacturer and six months ago the fear in the market was that with European problems worsening, the export market will dry up which will lead to huge structural problems.
But this hasn’t occurred, exports were up 11.3% for the month compared to the same period last year. Keep in mind we aren’t cycling off weak numbers, last year was a solid result.
Has China completely stopped buying foreign goods? Not at all. Iron ore imports grew 9.7%, crude up 11% and copper up a whopping 47%. Copper is not a source of energy, you consume it when your economy is producing – laying electricity infrastructure, manufacturing electronics etc.
Yesterday’s inflation data points to a rate which this time last year would have been a dream. In summary, we have the world’s second largest economy growing its exports by 11.3%, booking a trade surplus in excess of US$31bn and all this with an inflation reading of 2.2% and somehow the market is disappointed? So be it.
We actually think today’s numbers, despite the initial market reaction, are a slap in the face of those who dismissed China’s ability to continue growing its exports in 2012. You don’t continue importing copper and iron ore if your economy is on the brink of collapse.
Perhaps the Chinese are starting to consume more of their own goods and perhaps consumption as a proportion of total GDP is increasing from what was previously a very low base.
If that’s the case, one should have a close look at recent presentations by companies leverage to an increase in this consumption. Today’s presentation by ASX listed IAG makes for a very interesting read.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.