Daily Market Digest: China Inflation Data, German and UK Trade Balance

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China inflation grows at a steady pace of 2.30% while PPI continues to rise steadily. German trade balance surplus reaches record highs which could see first quarter GDP stronger than expected. UK’s trade balance deficit widens to pre-2008 levels.

Today’s Economic events

  • China CPI y/y 2.30% vs. 2.30%; PPI y/y -3.40% vs. -3.80%
  • Switzerland Unemployment rate 3.50% vs. 3.50%
  • German industrial production m/m -1.30% vs. -0.20%
  • German trade balance 23.6 billion vs. 20.4 billion
  • French industrial production m/m -0.30% vs. 0.60%
  • Italy industrial production m/m 0.0% vs. 0.30%
  • US NFIB small business index 93.6 vs. 93.2

Coming up

  • The US Wholesale Inventories
  • RBNZ Financial Stability report
  • RBNZ Gov. Wheeler speech

China inflation steady at 2.30%

Consumer prices in China remained stable in April at 2.30% but was still below the government’s full-year target of 3.0%, official data from National Bureau of Statistics showed early on Tuesday. Consumer prices in China remained steady at 2.30% for the third consecutive month. Food inflation slipped to 7.40% from 7.60% while non-food inflation increased to 1.10% from 1.0% previously. China’s producer price index data also released today showed prices declining less than expected. PPI fell 3.40% in April from last year and marks a 50th consecutive month of declining PPI’s. Economists expected to see a decline of 3.70% instead after PPI fell 4.30% in March. Between February and March, PPI advanced 0.70% posting a second consecutive rise.

Economists expect China’s inflation to stay tame for the remainder of the year and note that price trends along will not be a strong case for the PBoC to lower interest rates even more, after cutting rates six times in 2014. The current trend in China’s inflation is showing signs that the economy was bottoming out. Chester Liaw, an economist from Singapore, said “With regards to monetary policy, we do not expect inflation to play a large part in the central bank’s thinking. Inflation prints are not too high to dissuade them from further easing if need be, and not too low to warrant loosening.”

German trade surplus hits record high in March

Germany posted a trade surplus of 23.5 billion euro in March on a seasonally adjusted basis, marking the highest surplus recorded since 1990, data from German statistics agency Destatis showed earlier today. The trade surplus came as exports increased 1.90% on the month, while imports fell 2.30%, indicating that net exports weighed less on the GDP growth in Q1 than previously thought. Current account surplus which is a broader measure of the economy in the international financial position posted a surplus to 30.4 billion euro, another record high in March.

JP Morgan economist Greg Fuzesi said, “Overall, the German industry and trade data were mixed in March, but that still left 1Q 2016 posting large gains. This leaves us comfortable in expecting a solid GDP gain of 2.5%.”

In a separate report, Germany’s industrial production fell 1.30% in March, the biggest decline in industrial output since August 2014, data from Destatis showed. The 1.30% declines came after February was revised to a 0.70% decline. Weak industrial production figures were also seen in France where industrial output fell 0.30% in March or about 2.30% declines on a year over year basis. Italian industrial production remained flat for the month, but February saw a downside revision from -0.60% to -0.70%.

UK trade deficit widens in Q1 2016

The trade deficit in Britain widened to historic levels, last seen during the early days of the financial crisis in 2008. The trade deficit widened to 13.27 billion GBP in Q1 2016, up from 12.20 billion GBP in the fourth quarter of 2015, data from the UK’s Office for National Statistics showed. However, data from March showed a modest improvement with a trade deficit in goods narrowing to 11.20 billion GBP. Today’s figures showed overall that export volumes in the first quarter slipped 0.10% while imports rose 1.50%. The data comes after the first estimates of Q1 GDP showed a 0.40% increase while more recently, PMI’s across manufacturing, construction and services fell sharply in April.

Shilen Shah, strategist at Investec Wealth & Investment notes, “With increasing evidence that the [U.K.] economy is slowing down, today’s trade data confirms the view that the external sector is still a drag on GDP. The recent fall in sterling’s trade weight has the potential to be supportive over the medium term. However ahead of the Brexit vote, one of the twin deficits still remains uncomfortably wide.

UK GDP 2016 forecasts cuts, Rate hikes in Nov 2016 – NIESR

The UK’s national institute of economic and social research, in its report today noted that should the UK vote to remain in the EU, GDP for 2016 is expected to rise 2.0%, below previous forecasts of 2.30%, while rising to 2.70% in 2017. NIESR noted that inflation is expected to average 0.30% this year and 0.90% next year and notes that the Bank of England will start raising interest rates in November this year, ending 2017 at 1.50%. On the other hand, NIESR notes that should UK vote to leave the EU, GDP could fall by as much as 1 percent point by 2017.

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