China Reports Unexpected Trade Deficit

(For February 2011)

China trade balance was reported at USD -7.3 billion vs. USD 6.45 billion in January and USD 4.9 billion consensus. Export and import growth were running at 2.4 and 19.4 percent vs. 37.7% and 51.0% y-o-y in January.

Large unexpected surprise, but something I hinted earlier in my dry bulk weeklies. Concerning deficit itself it’s probably result of seasonal effects (Lunar New Year) and POBC tightening measures. I expect some normalization in March, but nevertheless the market reaction could be violent in coming days because this is a game-changer, especially in relation to yuan appreciation calls.

POBC tightening to contain inflation will probably have to be relaxed or even reversed  because Chinese government faces two alternatives: 1. higher growth & higher inflation vs. 2. lower growth & lower inflation. The outcome of this is pretty clear.

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This entry was posted on Thursday, March 10th, 2011 at 4:51 am and is filed under China, Commodities. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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