China's encouraging trade numbers for August

Clusterstocks has an article which stated that China's trade gap in August came in much narrower than expected (here). Its report was in turn based on a Nomura's report, which noted:

China's import and export growth both surprised on the upside in August. Because of a surge in imports, the trade surplus narrowed sharply to US$17.7bn from US$31.4bn. The strong rebound in nominal import growth reinforces most other activity data, suggesting that the economy is experiencing only a gentle slowdown. The details suggest that the rebound was not simply due to higher import prices. Indeed, the volume of iron ore imports rose by 32%, y-o-y in August, and import volumes of big-ticket items like cars and airplanes grew by 38% and 43%, respectively. We believe this strong domestic demand will help to support an economic soft landing in the coming months. New loans in August climbed to a higher-than-expected RMB548.5bn from RMB492.6bn in July. August M2 growth slowed to 13.5% from 14.7%. The decline of M2 growth appeared to have been largely driven by lower FX purchases by the PBOC in August, which were due to the narrowed trade surplus.

Another Japanese research house, Daiwa Capital Markets cautioned against reading too much into the trade numbers, however, saying that August figures are distorted by a surge in shipments ahead of the holiday shopping season starting in the fourth quarter. This was reported by Market Watch (here). Other data released over the weekend showed money-supply growth slightly below expectations, while loan growth was modestly higher than expected.

The strong demand for iron ore has contributed to a sharp rally in BDI over the past few weeks. The positive trade figures from China & the pick-up in BDI are the two of the very few good news in an otherwise gloomy global economic landscape.


Chart: BDI's daily chart as at Sept 9, 2011 (Source: Investmenttools.com)