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China’s Export and Import Growth Slows

03/09/2011

China's import and export growth slowed in February. I believe two conditions impacted the slowdown - the Lunar New Year and tighter monetary policy.

The growth slowdown is consistent with recent market price action which I have identified as downsizing from "overweight" to "market weight."  Select resources are in the midst of a much needed correction.  Take a look at this week's price action in copper, coal, steel, and grains:

  • Copper prices have pulled back over 7% this week
  • Wheat is down over 8% this week, corn 4%, and soybeans 5%
  • KOL (Coal ETF) has declined 2% this week
  • Steel prices are down 3% this week  

Let's review the data reported Thursday, March 10, 2011:

China's Export and Import Data

  • Exports grew at the slowest rate, 2.4% year-on-year, since 2009
  • A trade deficit was unexpectedly reported at $7.3 billion; the prior month a $6.5 billion surplus was reported
  • Imports grew 19.4% year-on-year, below consensus growth estimates of +33% and January's reported +51% growth
  • For purposes of smoothing out the Lunar New Year effect, January and February combined equals a net deficit of $890 million versus last year's Jan/Feb $22 billion surplus

In 2010, China reported a trade deficit in only one month, March, which was impacted by the Lunar New Year.  The near-term risk is that this data will "give cover" to Chinese policy makers to slow the recent appreciation of the yuan.  Its appreciation of over 3% in the last six months has been a favorable condition for risk assets. 

Standby.  Next month's report, to be released somewhere around April 10, might be one of the most important in many years.

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