In a market constantly being buffeted by trade war news, China dropping several major data points in the coming days could be key to financial performance. The Asian giant has been the target of some of the highest tariffs, and is a key importer from other major economies such as Australia, Japan and even the EU.
The Chinese economy has internal challenges as well. Concerns about the housing industry have become obscured by trade issues, but haven’t gone away. The government’s massive stimulus measures appear to be keeping the economy surging ahead, despite the trade war. But any signs of cracks could leave markets worried once more.
Keeping Trade Surging
First up is China’s June trade balance, which is expected to be largely unchanged compared to the prior month at a surplus of $100 billion. The indicator went for a bit of a roller-coaster around the April tariff announcement and is seen normalizing now. The Fed provided indications that trade with China was pushed forward ahead of tariffs, leading to a normalization afterwards with US companies having higher inventories. This could keep downward pressure on demand from China as the inventories are worked through.
Chinese exports are expected to have accelerated to 5.5% growth from 4.8% prior, while imports are seen reversing their trend to +2.5% from -3.4% a month earlier. However, analysts point to the high price of crude during June due to the Iran-Israel conflict. With relatively high inventories, China might have slowed crude imports during the month to avoid higher prices. Analysts also note that Chinese demand for crude is expected to increase through the remainder of the year.
A Still Strong Economy
Of course to maintain its demand for raw materials, China needs to see its overall economy continue to remain solid. The expectation is for the Chinese economy to have grown 1.1% in the second quarter, just shy of the 1.2% reported in Q1. This would mean an annual growth rate 5.3%, above the government’s 5.0% target.
That could actually end up disappointing markets, since growing above target could mean the government doesn’t feel as compelled to support the economy through additional stimulus. Signs that the central government’s support for the domestic economy can be seen with June retail sales expected to grow at a 6.1% rate compared to 6.4% prior.
Time for a Deal?
China can be seen as a bit of a bellwether for the trade war, since it is bearing the brunt of it. If China as an export-driven economy manages to grow despite the trade uncertainty, it could give confidence that other economies will fare well.
However, markets are likely still to hold back until the trade war uncertainty is resolved. While the initial reaction to push the deadline forward was seen as positive by the markets, prolonging the uncertainty might weigh down risk appetite in the long term. That could be a problem for commodity currencies that rely on exports to China, such as the Aussie.