September 8, 2014

China Posts Record Surplus as Exports-Imports Diverge

• Exports ▲9.4% YoY (forecast ▲9%) and imports ▼2.4%
• Trade surplus of $49.8 billion (forecast $40.00 billion)
• Exports to the U.S. ▲11.4% YoY while shipments to the E.U. ▲12.1%
• Imports from the U.S. ▼3.1%
• China’s exports are being helped by U.S. economic growth that rebounded to a 4.2% annualized pace in the Q2, with measure of consumer confidence and manufacturing ▲ in August, and construction spending ▲ in July by the most in two years

Thought

As global economy recovers, China gets lots of gains from exports. Especially consumer confidence in the U.S continuously increases, which boosts growth in China's exports. China's export is highly related with consumer spending in the world.

Germany’s Trade Surplus and Exports Reach All-Time Highs

• German exports ▲ above $129 billion for the first time in July and the trade surplus ▲ to an all-time high, even as escalating sanctions against Russia threatened trade flows
• Imports ▲1.8% in July, the current account surplus ▲ to 21.7 billion euros from 17.2 billion euros
• German factory orders and industrial production expanded more than expected in July

Thought

If you think the economic indicators about German factory production and PMI, it did NOT go below 50. It means that even though geopolitical crisis continuously Germany still had strong manufacturer power. Of course, the fact that exports reached all-time high is still surprising, but expansion in surplus is expected.

Now the question remains whether Western sanction over Russia will continue. Even the sanction will extend, it unlikely have a huge impact on Germany's economy since it proves that the economy works fine with the sanctions.

Consumer Credit in U.S. Surges on More Loans for Automobiles

• Consumer borrowing in the U.S. ▲ more than forecast in July
• $26.01 billion (forecast $17.35 billion)
• Non-resolving loans, which include borrowing for autos and college tuition, ▲$20.6 billion, the biggest gain since July 2011
• Credit-card lending ▲ for a fifth straight month
• A stronger job market and rising home values are giving households the confidence to take on debt to buy big-ticket items such as motor vehicles. Banks are also becoming more willing to lend, which could encourage more consumers to boost their spending

Japanese Economy Contracts More Than Initial Estimate on Tax

• Japan’s economy contracted the most in more than five years
• GDP ▼7.1% YoY (forecast ▼7.0%) compared with ▼6.8% last month
• ▼1.8% QoQ (forecast ▼1.8%)
• The blow from the sales-tax hike in April extended into this quarter, with retail sales and household spending falling in July
• Companies’ capital investment ▼5.1% QoQ (forecast ▼2.5%)
• Capital expenditure growth by non-financial companies will slow on aggregate to 1.3% next fiscal year from an estimate of 7.9% this year
• Private consumption ▼5.1%
• Dropped an annualized 19% from QoQ
• Industrial production rising less than expected in July and August car sales dropping to a three-year low

Thoughts

The problem of Japan's economy is that payroll does not go along with inflation. Abe's sales-tax increase had a great intention to escape from decade-long stagnation. But if it doesn't go along with payroll growth, consumers will buy less which eventually put the economy in danger. We need to look at Japan's payroll growth and its job market to forecast is economy.

Increase in geopolitical issues like independent movement in Scotland and sanctions over Russia, and decrease in China's import had a negative impact on U.S. market. However, Alibaba IPO and Ukraine's attitude to seek a peace gave a positive view on the market at the end. The volatile of the market was small as a result.

There is an interesting phenomenon in Nikkei 225. Even though Japan's Q2 GDP decreased significantly, stock market had a little impact on it. It means that decline in GDP is already reflected in the market, and expectation of additional stimulus from BOJ exists.