China’s exports and imports beat expectations in June. However, trade is still well down compared to the same period last year. The trade data is likely to yield a mixed reaction while USD/CNY looks oversold around 7.00, economists at TD Securities inform.
Key quotes
“China’s June trade data came in better than expected, with exports rising 0.5% YoY (mkt -2.0%, TD -2.1%) and imports rising 2.7% YoY (mkt -9.0%, TD -12%). As a result, the trade surplus fell to $46.42 billion from $62.93 billion in the previous month. The data revealed a sharp improvement compared to last month, when imports slid sharply. However, trade in H1 is still well down on the same period last year, with overall exports down 6.2% and imports down 7.1%.”
“Going forward, import demand should continue to be supported by domestic growth improvement, though high frequency data suggest that momentum is slowing. Exports will likely struggle following a near term bounce as economies globally struggle to deal with second virus waves and uneven opening up. Overall, the data present a more constructive picture of China’s economy, consistent with our forecast of a better than consensus Q2 GDP reading on Thursday; we expect a 2.7% YoY (mkt 2.2%) increase, following a 6.8% fall in Q1.”
“Market reaction is likely to be mixed, with upside potential limited against the current backdrop; China’s authorities have tried to dampen some of exuberance in domestic equities over recent days and risk appetite has turned more negative amid negative second wave virus news globally and worsening US/China tensions.”
“CNY has maintained a firm tone over recent weeks, both vs. USD and on a trade weighted basis. However, USD/CNY looks oversold and we think USD/CNY will struggle to maintain any short-term move below 7.00 amid mounting US/China tensions.”
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