China Trade Data Dismal, Throws Open Door for More Easing

(eToro Blog) It was generally understood that last week’s surprise rate cut by the PBOC was intended to forestall likely market jitters which would naturally have come on the heels of disappointing economic data. As we learned today the data did, in fact, disappoint; according to the Chinese Customs Administration, imports rose by only 6.3% in June as compared to June 2011, markedly below the 12.7% rise that analysts had been expecting. Imports were also lower on a month-over-month basis, which is likely to give rise to concerns that Beijing’s previous easing moves have thus far been inadequate.

Yesterday, it was reported that consumer and input inflation were lower than expected at 2.2% and -2.1%, on a year over year basis, as compared to expectations of 2.3% and -1.9%, respectively. Analysts say that that signals a deterioration in demand, and a recent survey of purchasing managers supports that notion. Weaker demand domestically is a particularly worrying sign for the Chinese government given that the county is already seeing an erosion in export demand from key trading partners the U.S. and the E.U. Beijing’s official target for import and export growth this year is 10% but both the Vice Premier and the Chinese Commerce Minister have their doubts that that is achievable.

Nonetheless, that news leaves plenty of leeway for more easing, which was hinted at by Wen Jiabo, the Chinese Premier, over the past weekend. The purchasing managers’ survey indicated that a majority of respondents believe that Beijing must take an even more aggressive stance. Indeed, despite the recent efforts, growth estimates have consistently been lowered; the most recent poll of economists is forecasting that second quarter GDP to drop to 7.6% from 8.1% in the first quarter.

Any efforts made by the Chinese government to bolster growth there will have a trickle down effect on many economies which are reliant on it economic health, including those nearby neighbors, Australia and Japan.

The AUD/USD is lower at 1.0187, and OpenBook sentiment is being driven by bears, with 70% of traders selling against 30% buying. Over the past 24-hours, OpenBook trader KENT1668 from Malaysia has been successfully working both sides of the AUD/USD pair, with a long closed earlier today with a 14% gain which was preceded by a pair of short positions that earned an average 15%. The trader has 7 copiers and 890 followers, and has a 44.3% profit for last week and 62.3% for last month.

The USD/JPY is lower at 79.2550, while sentiment on OpenBook is bullish with 82% buying versus 18% selling. OpenBook trader Paladium72 from Switzerland had three short positions in the pair hit their respective TPs earlier, with one returning a profit of 17%, another a 70.52% profit, and still another a 105.80% gain. The USD/JPY pair has consistently provided the trader with the highest return in the portfolio; over the last month the 1.8% allocation earned 28.1%.

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