Chinese Trade: Shock or Bore

Wednesday, March 07, 2012

Well, it was worth the wait - at last the roll over. But what is interesting is the current game of "find the fact" with which to explain the down turn. As previously mentioned, TMM have been looking for a turn based on technicals and psychology with diminishing surprise at relatively good data adding to the turn. Yesterdays trigger appeared to come from "Things Chinese" rather than the more oft quoted concerns over Greek PSI or whatever other Eurowoe is in fashion. In fact EUR/AUD's rally could be seen as testament to this.

So with Chinese news under the spotlight TMM were somewhat taken by this morning's "accidently on purpose" leak of China's February Export numbers to the party faithful by Minister of Commerce Chen Demming. TMM's collective jaws drop at the combined January and February export numbers only posting a 7% rise. Or in layman's terms, shit. Using TMM's sticky-back-plastic/cereal box seasonal adjustment tool (see below chart), that would suggest that Chinese exports had fallen YoY for the first time since the 2008 trade shock. Which isn't particularly good.

But TMM reckon something smells. Because such a collapse in export growth would suggest that external demand had completely cratered which, according to data in the rest of the world (e.g. the PMIs) seems not to be the case. Something does not add up. Time for TMM to put on their data torturing investigative hats.

Aside from the usual complaints about China's data being manipulated for political reasons (shock! horror!), it also isn't very good in terms of statistical availability, because the actual important metric is trade volumes rather than trade values, at least from the view of Joe Sixpack. Because if the price of something the US (or EU or wherever else) consumer buys falls, he/she can obviously buy more of it or alternatively, has more money to spend elsewhere... like on gasoline. And this is particularly interesting given that the steel, iron ore and coal within mainland China appears more offered than a night out with Ed Miliband at the Fascist Elocution Society's Annual Ball. So that got TMM thinking... we wonder if the domestic tightening and slowdown ongoing within China had made its way through to export prices. And while some of the this move is clearly base effects, it does seem as though export price inflation has hit a wall (see below chart). So this might provide some reason as to why the reported export numbers were so poor.

To try and see if this is indeed the case, TMM tied the data to their Rack and had a go at trying to extract signal from the noise by attempting to adjust for Chinese New Year and Export Prices. Happily, this fudge adjustment shows real exports growing at just shy of 10% YoY. They then knocked up a quick Blue Peter-style model of Real Chinese Export Growth based upon lagged US/ EU PMIs & their Orders/Inventory balances and came up with a reasonably OK fit (see chart below). In fact, it would seem that this naive model would have expected a more dramatic drop off in export growth, with a rebound over the coming months.

Now, TMM always take everything with a pinch of salt and are certainly on the alert that if the trend does not reverse soon, then something is afoot. But for now, it looks a case of "Move along, nothing to see here".

Posted by cpmppi at 11:42 AM  


Bore. Algos read this blog first thing in the morning!

Anonymous said...
2:15 PM  

Nice one, cpmppi, (or "Noakesy", as we should refer to you), now you can celebrate by drinking a bottle of fizzy pop and eating a yoghurt. But don't forget to save the bottle cap and the yoghurt pot to use for the next model....

ADP +215k over here, with govts averaging -35k, that predicts a +180k for Friday. Of course the ADP has been known to miss. FX traders are having a bit of a snooze after all the fun yesterday. So that's probably why Spoos are only up 3 or 4.

Leftback said...
2:39 PM  

Thanks LB, glad to see another fan. We would be interested to know if any readers actually have earned a real Blue Peter badge.

We might write in...

"Hello, I have spent 5 yrs with my friends building this model of a serious financial commentary. We call it a blog. It is built of weak surmises and basic bits of maths. It isn't very good and most of its arguments tend to fall apart when challenged...

But can we have a Blue Peter badge please?"

cpmppi said...
3:04 PM  


QE3 here we come!!!!

WellRed said...
3:16 PM  

Concur, excellent investigatory work there....we know now where you went to school.

Americas future Economists.

Amplitudeinthehouse said...
3:22 PM  

I wrote in and asked for a Blue Peter Badge, they said that they only hand them out for specific acts of merit, not just to anyone who asks for one. I did get a signed photo though.

Oliver said...
5:11 PM  

Not sure where the RBA went to school. They are calling for 3.5% growth in 2012, but meanwhile the real world data are cliff diving:

Australian GDP +0.4%

Services contracting, construction falling, China slowing but hey, no worries, mate.

Our sunny friends Down Under are now just one dodgy jobs report from having a bloody good equity Chunder.

Leftback said...
5:14 PM  

one the point of export prices/volumes, why do volumes matter so much more, I really didnt get the argument, though I guess it depends on what you are using the data for.

Anecdotally, the cargo shipping industry (from Latam, Europe, and Asia) in really difficult time (though mostly bc of overcapacity) But shipments still down

I think we still have another 2-3% down in markets before the weak hands dump into the LT buyers

abee crombie said...
7:27 PM  

I saw this at Bronte Capital blog and couldnt resist repeating it here

RBA's Priorities

1. China
2. Europe
3. Australia
4. New Zealand

Intrinsic said...
11:23 PM

tend to agree, RBA is not wide awake at present


Anonymous said...
10:29 AM  

From one perspective, it was only a 1% down day, JBTFD, Greece fixed, dip bought, US decoupling and growing jobs, housing stabilized, Morning in America....

From the other, Trannies rolled over, making lower highs, US junk spreads still wider, plenty more patently insolvent European countries where that one came from, REOs as far as the eye can see, and there's only 50k jobs difference between recovery and Mourning in America.

Leftback said...
6:24 PM  

I got a Blue Peter badge. But I seem to recall I cheated to get it. Does that count?

Anonymous said...
7:21 PM  

Nothing happening today whatsoever except the algos in the ES inching the market higher on ZERO VOLUME. (dragging the rest of the market with it)

But today's ridiculous price action tells me one thing... we will very likely have a selloff tomorrow or early next week and continue our way down to the 50DMA.

Without the silly , fake price action today... a big rally may have been in store for tomorrow. Not now.

chancee said...
8:01 PM  

C says'
We have a grinding equity market virtually unidirectional offering pissall dips. Now from long standing observation these types of market do not tend to end abruptly. They transition and the first real sign of change is volatility. My take is we have enough conflicting issues in play to keep people guessing and the result of that during what remains a seasonally bullsih part of the year will be moves greater in degree than we have seen in recent weeks and they will go in either direction,but as seasonality ends I expect to see us conclude having mean reverted soem of the preceding rally. For myself I am not actually watching direction here I am watching the calendar for when I want to become re allocated.Trading ,well there is always some sector in season and of course out of season and shortable which reflects what should be increasing choppiness.

Anonymous said...
8:04 PM  

Welcome to Late Night Macro with LB!

While TMM are sleeping, getting hammered and/or doing other things, our US-based correspondent takes a few moments to reflect on Macro matters and/or slips in a few off the cuff witticisms or just pokes childish fun at gold bugs....

First let's chat with other readers:


Welcome back. Broad agreement here, on the slow grindiness of slowly grinding tops. We aren't leaning heavily yet (although we are net short), and I like buying volatility at these very low levels. This week has already been "much more volatile" than the preceding one. It's all relative!


The 50 DMA at 1320 is most certainly an integral part of our current trading model. Let's hope Mr Market isn't looking at 1420 first.

After the break, we'll discuss the ramifications of whatever nonsensical agreement may have been cooked up in Athens....

Leftback said...
2:33 AM  

Welcome back to this Late Night edition of "My Big Fat Greek Debt Swap"

Now at the risk of nauseating the audience, it is finally here. Yes, folks, the Greek debt swap will be finalized at 6am GMT (or 1am for those punters in the other Greenwich). The always reliable mainstream financial media are now disseminating the consensus view that:

Everyone's a Winner

If Candide were in charge of the ECB, then indeed perhaps "all is for the best in the best of all possible worlds".

However, since this is the far more realistic (not to mention cynical) world of the blogosphere, let's take a more incisive look at the state of mind of some of the possible participants when they wake up in the morning:

1) CDS Sellers. (The Really Large Banks, Who Else?) Masters of the IBG, YBG trades. They or may not get away with it. This time they might, but future default still looms. Nobody at BFSB remembers whose bright idea this was, and the revenues have long since been recycled into visits by the BSDs to local houses of ill-repute. So, really, who cares what happens? Another case of "Honey, I Shrank the Q1 EPS".

2) CDS Holders. May or may not get paid. One or two clever hedgies who may or may not be left sitting with a useless pile of CDS (Completely Devalued Shite) and a US Marine Corps haircut on the GGBs they cleverly bought at 23c on the $ thinking they could make a killing on "basis trades", which they read about on the pink blog but then slapped it on without looking up what that might entail.

3) Private Sector GGB Holders. Will take very severe haircuts, and (joy of joys) will be given new GGBs, which will then trade at par or better - in perpetuity! .... Wassup? Oh, a bit optimistic, you think?

4) The Greeks. Still yoked to a foreign currency in the manner of the Argentinian peg to USD, 2001, which finally ended quite delightfully - as those of us in attendance will remember. Might as well be on the gold standard. This is good for black marketeers, mafiosi, Eurocrats and smugglers, but not much good for the rest of the population who are experiencing hardship and Depression.

5) The Germans (Dutch/Finns etc). Likely to be sending more thoughtfully constructed aid packages again in about 6 months. Not happy.

6) The Portuguese. If Greek CDS aren't paid in the face of a very dodgy and highly defaulty-looking deal, then why would anyone buy Portuguese bonds ever again, in the absence of protection? No Bid?

7) The Spaniards. Left wondering how much longer they can get away with the shell game of moving their money between Madrid and the provincial governments in time for the next audit, then as soon as the auditors leave, start loading up the truck to go from Valencia to Valladolid....

8) Mr Market. Still trying to ignore the babble from the Mediterranean and focus on the improving US economic picture as the virile broad-shouldered American economy shrugs off the problems of those wimpy pinko liberal socialist Euronancies and prints a vigorous .... +65k....... (what? where's my massive employment recovery?)

Crikey, I'd better scarper, in case cpmppi missed the last train and decides to kip in the office again.....

I'll sithee....

Leftback said...
3:25 AM  

Goldilocks number from the wizards at BLS. +227k. Astonishing how they can count a really big number and have it vary by less than 0.1%. We would take our hat off to them, if we were wearing one.

This is actually a bit lower than some of the whisper numbers, and down from a revised +284 in Jan. LB ignores the headline number, and looks at Hours Worked which is less fudgeable, and it is unchanged. Overall this is another blah report - one of many blah jobs reports that we will see during this decade!

Last night's China data might prove more important in the near term.

Leftback said...
1:51 PM  

AEP, for one, is NOT IMPRESSED with the recent shenanigans regarding the Greek restructuring. He suggests that more trouble lies ahead.

Legal Skullduggery

Additional defaults, sorry - restructurings, do seem highly probable, in Portugal, and ahem, Greece. As far as bond markets are concerned, the one to watch at the moment is Spain.

Italy seems to have been given the thumbs-up and LTRO seems to have resulted in massive buying of BTPs. Meanwhile, Spanish yields have been rising of late, almost as though someone suspects that the numbers we have been given might be, "hecho..."

Leftback said...
6:51 PM  

It's been a busy week in the studio for you,LB. Time for you to take well earn break this weekend.

I'll be hitting Zafu straight after I hit the send button, and asking the karmic gods,

"in what lifetime did I deserve this dummy put on me?".

I hope she/he says

"Well, you're living in the realm of non-obstruction of reality, whereas the dummy is the phenomena and the reality is your perception of a non-dualistic world....therefore the dummy attempt to transfer their delusions into your reality is futile if you remain focused....and the merit you would've accumulated , I'll promise this last one represents a thousand future lifetimes.

Amplitudeinthehouse said...
7:52 AM  

the thrill of the chase goes on. pass the pineapple.

Anonymous said...
11:13 AM  

Pass the sugar please.

Anonymous said...
11:14 AM  

net out their reserves stockpile buildup of oil and their gold purchases and see if they have a trade deficit then ...

mjpwelly said...
10:13 PM  

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