Global Markets Overview – June 10, 2014

China trade adds to signs of growth

Yesterday's trade balance from China might be the first nominal piece of data that could confirm targeted easing is taking effect. May exports rose more-than-expected, by 7%, as overseas shipments ramped up on the back of improving signs from Europe and the US.

Inferences will be drawn here as to which side of the world the increases in exports have been driven from.

Has the ECB's foretelling of its rates decision in June has seen importers pre-ordering inventory for the expected increase in consumption as credit becomes even cheaper?

Has US data over the past three months raised expectations heading into the summer of increased spending and a US economy that is now standing on its own two feet?

Or has the targeted easing measures from the PBoC and the central government help pushed supply surpluses?

Looking at the data, there is a strong suggestion that the US is the place to look for the surge in exports from China. On a nominal basis China exported US$21.18 billion in the month of May to the US, up from US$17.56 billion that's a 21% increase month-on-month. That is a huge increase and likely to increase further as employment in the US continues to ramp up. The figures from the non-farm payrolls saw unemployment falling to 6.3% as the economy saw another 216,000 jobs added. Employment is one of the drivers of consumption and demand for Chinese goods and from the figures seen it is more likely to increase rather than decline.

Consumer confidence and spending has being booming in the US with record highs in the markets coupled with highly accommodative monetary policy has driven wealth (in certain areas) and consumer optimism.

There was a 13% jump in the EU's numbers, however, this is coming from a low base having seen exports the region in the order of US$15 billion in January. However, the trade balance out of China does show that a return in European consumption coupled with the US data is not only beneficial for China but the region as a whole.

Some will point to falling imports as a sign the region may not have benefited from the increases in exports. However, the flow on effect over the coming months is likely to see imports improving as the measures enacted by the PBoC and the central government filters through the domestic market. Raw export nations such as Indonesia, Malaysia, Australia and New Zealand will be watching the Chinese economy over the coming months with a heighten eagerness, as a stabilising China will benefit these nations and theirs respective markets.

Ahead of the Asian Open

Australia is shut for Queen's birthday celebrations today. However, will still be all about the Nikkei. The yen held onto its losses which will give the Nikkei a boost on the open.

What might drive it higher is the GDP read. Although, the figures are likely to have been affected by domestic consumers avoiding the April consumption tax, results are certainly stronger than expected. It suggests Q3 and Q4 may be able to redeem and hold some of the growth rate lost in Q2 as spending slides. The figures are likely to help the Nikkei continue to break away from the correlation with the USD/JPY and rally on fundamentals rather than just forward expectations. We should be expecting a very positive day for the Nikkei all week.

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