The Chinese trade numbers released today were truly horrible.
- Exports -3.1% y/y vs. +3.7% exp
- Imports -0.7% y/y vs. +6.0% exp
It was the worst reading since 2009 and accelerates a weakening trend.
Markets have been remarkably sanguine about the massive miss because it comes after a crackdown on fake invoice schemes. But the crackdown came in April so the month-over-month figures shouldn’t read like this:
- Exports down 4.6% from May to June
- Imports down 9.3% from May to June
Officials at China Customs say the colossal declines now reflect a true picture of the economy and that the outlook for Q3 exports is grim — they actually said “grim”. Rather than invoicing, officials said the main cause was “prolonged sluggish foreign demand.”
“Chinese trade data clearly slowed in the second quarter. In particular May and June left little room for optimism,” said Zheng Yuesheng, a customs spokesman. “Our country is facing serious challenges in foreign trade at present.”
This report adds a significant negative skew to Q2 Chinese GDP numbers and June industrial production data to be released Monday but the market is outright ignoring it. I’m not one to question the wisdom of markets but this report is a huge red flag and the liquidity crunch in late June will put further downward pressure on growth.
One argument you can make is that it opens the door to stimulus but actions of the new administration in China have been the opposite as they look to squeeze out excesses.
I’m not sure if it’s just a sleepy summer market or traders would prefer to believe in the fairy tale of roaring Chinese growth but as evidence of an accelerating slowdown mounts, many people will look back to today and wonder why they didn’t react.
