(08 NOVEMBER 2017)DAILY MARKET BRIEF 2:China in focus on a slow news day
Perhaps the timing might be questionable but China trade surplus with the US dropped to $26.2 in Oct from $28.08. Interestingly US president trump will be traveling to Beijing today to meet Xi Jinping. Overall while exports dragged increasing 6.9% y/y from 8.1% (against 7.1% exp), Imports surged 17.2% leaving trade surplus of $38.2 bn for the month. The rising import is good news for regional commodity exporters and indication that domestic demand have improve due to rebalancing. However, for Oct read Iron ore imports buckled as China made efforts to halt pollution through crackdown on steel producers. China’s weaker export growth suggests slowing global growth.
With rising geopolitical risk and rising evidence of a broad economic slowdown EM currencies are exposed. Especially against the US rising yield curve. Yet USDCNY and China-US 10yr yields correlations has disconnect indicting that in at least, in the short run, CNY will be less exposed to higher US rates. Tomorrow China’s CPI inflation should rise to 1.8% y/y in October as food prices increase above normal trend. Higher inflation read will likely spark tighter PBoC policy giving CNY a boost and hurting regional equity.
By Peter Rosenstreich
