CHINA: Country Wrap: September Exports Surge (Ex US) as Trade War Intensifies

Market Summary:  With Japan out today, it was left to China's major bourses to guide sentiment as the trade war rhetoric ramps up. Having declined over -1.9% Friday, the CSI 300 started the week on the back foot, dragging the other key bourses with it. Down -1.7% today, it was the biggest two days of consecutive falls since April when the trade war began first ratcheted up. The Hang Seng fell sharply, down -3.3% as it traded through the key 20-day and 50-day EMA's and now is approaching the 100-day EMA which it last traded below in April. There was little positives to find as Shanghai Comp fell -1.30% and Shenzhen down -2.2%. The retail expansion of equity accounts over recent months has been a key contributor to the performance of stocks and comes on the back of a multi year decline in housing. The authorities will be loathe to see significant stock losses for investors and news agencies over the weekend were keen to spell out that the outlook for the CSI 300 should be little impact by the threats coming from Washington.   The Yuan Reference Rate at 7.1007 Per USD; Estimate 7.1234 and bonds are staging a mini rally with the 10-Yr back down to 1.83%, having trade above 1.9% just prior to the recent break.  The stability in CGBs comes despite the PBOC releasing details that it undertook no government bond trading for a ninth consecutive month.

• The moderation of exports in August was short-lived as September's numbers jumped +8.3% YoY, beating expectations and much stronger than the month prior.  According to BBG estimates, the decline in exports to the US was significant, down -27% YoY. This points to the growth of demand from non US markets, arguably weakening the US's position in a trade war. Exports to Africa, India and other Asian nations are soaring with the latter back to pre-COVID levels.  US President Donald Trump had threatened to raise tariffs on China and withdraw from a high-profile upcoming meeting with Chinese President Xi Jinping, in a lengthy statement on Truth Social, citing a letter from Beijing which he claims lays out new rare earth export control measures.  The new Chinese rare earth export control measures are scheduled to take effect on December 1. Starting November 8, Beijing will also restrict exports of equipment needed to manufacture batteries for electric cars in a bid to protect the competitiveness of Chinese autos, per The New York Times.  Imports climbed +7.4% in September for it's largest monthly expansion since April 2024. Despite being a crude indicator for domestic demand, the result nevertheless comes a an invaluable time as the US rhetoric ramps up.  Along with the decline in exports to the US, imports from the US declined -16.1%, widening the trade surplus with the US to $22.bn.  Whilst this data captures a period before the weekend's escalation it may slightly strengthen Beijing's position in negotiations, given the ever growing decline in the US's importance to China's trade outcome.  (source MNI)
• Mainland China’s commercial and financial hub Shanghai has pledged to remove all regulatory hurdles for foreign investors to set up manufacturing businesses, as authorities move to shore up confidence in the local and national economies despite rising US-China trade tensions.  Mayor Gong Zheng said on Sunday that deepened reforms had been carried out to grant overseas companies in the fields of electric vehicles, value-added telecommunications services, biotechnology and hospitals full access to the Chinese market.  (source SCMP)