GLOBAL MACRO: No Clear Signs Of Chinese Trade Diversion Into EU In May
Jun-10 14:40
Chinese trade data for May was not suggestive of increased trade diversion away from the US and into the Euro area – a disinflationary risk that markets and some ECB Governing Council members have expressed concerns about in recent months. Instead, there appears to be more evidence that China is simply channelling exports to the US through other trading partners, such as Vietnam and other ASEAN nations.
- Chinese trade data is released with much less of a lag than the Euro area. Yesterday’s data for May was released before Eurostat publishes April goods trade data (due on June 13)!
- The headline figure coming out of the release was a 34% Y/Y fall in US exports. On a 3mma Y/Y basis, US exports were down 16%. That compares to a 12% increase for the EU, a 21% rise for Vietnam and a 16% increase for the broader ASEAN group.
- While above last year’s levels, Chinese exports to the EU are not obviously diverging from recent seasonal norms - in contrast to the US.
- Meanwhile, Chinese exports to Vietnam are instead operating above recent norms. This is happening in conjunction with a widening in Vietnam’s trade surplus with the US. Movements in Vietnam’s surplus with the five largest Eurozone nations have been more much muted.
- In its latest projection round, the ECB did not incorporate the disinflationary threat of Chinese trade diversion into its scenario analysis. However, it did note that “these dynamics could potentially amplify the downward pressures on inflation in the euro area in the severe scenario”.
- On the other hand, Executive Board member hawk Schnabel noted in subsequent comments that she “would argue that this effect is actually quantitatively quite small”.
- In a similar vein, JP Morgan recently wrote that “China deflation through April has been a modest drag for Euro area consumer price inflation”, and that their “analysis suggests that this drag is likely to remain modest”. They estimate “a 0.1%-pt drag on inflation over the coming two years based on the current level of the currency”.
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MACRO OUTLOOK: US PPI/Retail Sales And Powell Follow On Thursday [2/2]
May-09 20:17
- Core PCE implications will then be watched closely in Thursday’s PPI report, and we expect with additional focus on portfolio management after last month’s huge upward revision to February.
- Retail sales, whilst only reported in nominal terms, will offer a keenly awaited look at consumer behavior.
- Real spending moderated to 1.8% annualized in Q1 after 4.0% in Q4 despite likely tariff front-running, with April a good test of how much discretionary spending was pulled forward.
- Finally, Powell provides “Opening Remarks” at the Second Thomas Laubach Research Conference, although he’s allotted twenty minutes so there is scope for more substantive remarks than you’d usually expect. His message at Wednesday’s FOMC press conference was one firmly of being in no hurry to cut rates amidst huge uncertainty. He also appeared to put more weight on hard data over soft indicators that appear more stagflationary in nature.
MACRO OUTLOOK: US CPI Offers Look At April Tariff Distortions on Tuesday [1/2]
May-09 20:15
- The week’s US data calendar is highlighted by CPI inflation on Tuesday although PPI inflation and retail sales reports on Thursday are in close second. All three releases are going to be important, offering further hard data for April in the first month under reciprocal tariffs. What’s more, PPI and retail sales are followed by Fed Chair Powell just ten minutes after their release (more on that below).
- Core CPI inflation is seen accelerating to 0.3% M/M in April, with six unrounded estimates we’ve seen to date averaging 0.27% M/M.
- A potential for a ‘low’ 0.3% aside, it’s still likely a swift acceleration from a particularly soft 0.06% M/M in March which was in large part down to surprisingly abrupt declines in lodging away from home (-3.5%) and airfare (-5.3%) prices.
- This lodging weakness carried over to core PCE inflation back in March, at just 0.03% M/M after a particularly strong 0.50% M/M in February in a large wedge with core CPI at 0.23% M/M.
- Markets currently price a next Fed cut with the September FOMC meeting.
USDCAD TECHS: Pressuring Resistance
May-09 20:00
- RES 4: 1.4296 High Apr 7
- RES 3: 1.4111 High Apr 4
- RES 2: 1.4041 50-day EMA
- RES 1: 1.3943 High May 9
- PRICE: 1.3930 @ 16:06 BST May 9
- SUP 1: 1.3751 Low May 6
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
USDCAD has recovered from its recent lows. Despite the recovery, the trend condition remains bearish and short-term gains are considered corrective. A fresh cycle low on Tuesday reinforces the bearish theme. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Note that moving average studies are in a bear mode position, highlighting a dominant downtrend. Key resistance is seen at 1.4041, the 50-day EMA.
