August 8th, 2014

China Reports Record Trade Surplus

• Unexpected growth of export and decline in import accelerated the growth in July
• ▲14.5% in exports (forecasted 7.5%), ▼-1.6% in imports YoY (forecasted 3.0%)
• Export growth was 7.2% and import growth was 5.5% YoY in June
• The U.S. and European recoveries will help sustain expansion in Chinese economy
• Exports ▲17% to E.U. YoY; shipments to the U.S. ▲12.3% YoY
• ▼ in imports may be attributable to falling commodity prices
• Sales to the biggest markets of the U.S. and Europe ▲
• The surplus suggests pressure on the yuan to appreciate will probably increase if the central bank doesn’t actively intervene in the foreign-exchange market
• While an official index showed manufacturing expanded in July at the fastest pace in more than two years, a private gauge of services dropped to the record low, hurt by a real-estate slump

Thought
     Statistical data shows that imports declined in July. Well, the total price of price declined, but not the number of it. For example, China's iron ore imports ▲11% while the price ▼14.5% for seven months. The average price of soybeans ▼3.9% while the volume ▲20.2%. So, these data showing that the world's second-largest economy still consumes a lot of worldly goods, which may boost global economy.

     For instance, Japanese biggest trading partner is China. Japan needs China to expand its economy to expand its economy. Expansion in China is a good news for Japan, which suffers from decreased household spending and industrial output.

BOJ Holds Stimulus as Weaker Economy Challenges Kuroda

• After recent production and export data highlighted weakness, the BOJ pushes to stoke faster inflation; maintaining record stimulus
• The central bank stuck with a pledge to increase the monetary base at an annual pace of $687 billion
• Outbound shipments unexpectedly ▼ in June, while output slumped the most in more than three years as retail sales ▼
• Exports ▼1.1% in Q2 QoQ even after yen weakened 17% against the dollar since December 2012
• Production ▼ 3.3% in June MoM; the most since March 2011
• Retail sales ▼7% in Q2 QoQ
• Showing an economy struggling to rebound from a sales-tax increase last quarter
• The Topix index of shares ▼2.4% today in Tokyo, its biggest in three months
• U.S. President Barack Obama authorized air strikes in Iraq
• “Japan’s economy is likely to continue recovering moderately with the effect (of an April sales tax increase) seen gradually subsiding,” said Kuroda. “Exports and output have been weakening, but a positive economic cycle remains in place as job and income conditions steadily improve.”
• Consumer prices ▲3.6% in June YoY, outpacing a 0.4% gain in labor cash earning
• Stripped of the effects of the higher sales tax, core inflation was 1.3%, more than halfway to the central bank’s target

Thought
    Kuroda's confidence is come from the trade statistics (first 20 days of July) shows that exports ▲ 4.7% while imports ▼2.8% YoY while export declined 1.9% and imports rose 8.4% last month. Even geopolitical issues hits the Japanese market hard, those issues are not permanent.
     What matters are how well global economy and domestic spending expand. Trade balance in July imply that global economy are getting on the track to economic recovery (with growth in China and U.S.), and household spending is getting better (even though it is still -3.0%). Yes, like what Kuroda said the economic expansion had a setback. But it will get back on track this month.

E.U. Trade Balance

• German exports in June ▲1.1% YoY; imports ▲2.1% YoY
• Seasonally adjusted, exports ▲0.9% and imports ▲4.5% MoM in June
• The highest MoM increase in imports since November 2010
• In May, exports ▼1.1% MoM, and imports ▼3.4% MoM
• In YoY, exports ▲ 4.3% and imports ▼0.4% in May
• A surplus of 16.5 billion euros (17.8 billion euros in May)
• French manufacturing output ▲1.6% MoM in June, after a fall in May by 2.3%
• Output also ▲ in industrial production as a whole (1.3% MoM after -1.6% in May)
• Led by ▲4.6% in transport equipment, ▲1.9% in electronic and machine equipment
• Manufacture of coke and refined petroleum product ▼2.6%
• Manufacturing output ▼ by 1.2% QoQ, and Industry output ▼ by 0.5%
• ▼6.8% of refined petroleum products, ▼5.0% of electrical equipment and ▼7.9% in miming and quarrying, while ▲7.6% in water supply
• U.K. trade deficit was estimated to have been 2.5 billion pounds in June, compared with 2.4 billion pounds in May 2014
• 9.4 billion pound deficit on goods, estimated surplus of 7.0 billion pound on services
• The trade in goods deficit ▲ by 0.3 billion pound compared with May 2014
• Exports of goods ▼ 0.4 billion pound
• Reflecting falls in oil and manufactured goods
• Imports of goods ▼0.1 billion pound
• Reflecting falls in imports of oil and aircraft; these falls were offset by increases elsewhere in manufactured goods
• In Q2, exports ▼0.5 billion to 71.3 billion pound. Imports ▲0.4 billion to 98.7 billion pound, reflecting increases in imports of ships, cars and medical and pharmaceutical products
  

Thought
     ▲Even their main industry is a service industry, industrial industry and manufacturing take up to 20% of the economy. German exports decline was expected as E.U. had a slow economic growth and expansion of geopolitical risks.

     Good news came from France, which ▲1.3% industrial output in June after -1.3% last month. Yes, industrial output has been declined by 0.5% QoQ, but its increment in June is a start of comeback. Production of petroleum product is still expected to decline as the U.S. President Barack Obama approrved to strike Iraq.

     U.K. trade deficit widened by 1.3 billion pound YoY. While balance in services stayed the same, deficit balance in goods, especially to non-EU had a big growth. It is from increases in manufactured goods, which imply that consumer spending has been increased. Despite the deficit widened, ▲imports of manufactured goods implies that consumer are looking for more goods, which would boost U.K. economy while service industry keeps expanding.

DJIA and S&P 500 showed a significant rise on August 8th, 2014. Russia seeks a de-escalation of the conflicts in Ukraine. Even more, S&P had dropped 3.9% from July 24 to yesterday as the conflict of Ukraine and war between Israel and Hamas get worse. Today's rise is more like rebounding from the loss as the expectation of de-escalation came out.

FTSE declined as trade deficit widened, and NIKKEI also declined by almost 3% as U.S. approved airstrike on Iraq, which will boost oil price. Increase in commodity price will be a risk for Japanese economy as it seeks for expanding trade balance.

Sources:
http://www.bloomberg.com/news/2014-08-08/china-reports-record-trade-surplus.html
http://www.bloomberg.com/news/2014-08-08/boj-holds-stimulus-as-weaker-economy-challenges-kuroda.html

August 6th, 2014

Italy Recession, German Orders Signal Euro-Area Struggle

• Italy’s economy shrank 0.2% in the Q2 after contracting 0.1% in Q1
• It is a preliminary estimate. Will be updated on Aug. 14 along with Germany, France and Spain
• 74.0% Service industries, 23.9% manufacturing, 2.1% Agriculture
• “Today’s data are a serious reason for concern and confirm that the euro-area recovery is still sluggish at best”
• However, its industrial production ▲0.9% MoM in July; compared with -1.2% in June
• German Factory Orders ▼ 3.2% in June from May
• The E.U. agreed last week on its widest-ranging sanctions on Russia
• Russia counts Germany as its biggest trading partner in Europe
• German Vice Chancellor blocked a deal for Rheinmetall AG to build a military training center east of Moscow in light of the sanctions

Thought
    Even ECB proposes negative interest rate to boost economy and inflation, geopolitical risks and unemployment hold back its effect. For example, even Italy's unemployment rate fell to 12.3% from 12.6% in June, it is still higher than EU unemployment rate (10.4%).

     Germany's factory order has been decreased by geopolitical risks as well. It is not about it's policy or economic environment. Its economy expects to rise once the risks are solved.

U.K. House Prices Rise at Fastest Pace Since 2006

• U.K. house prices ▲1.4% MoM in July (▲0.4% forecasted); -0.4% in June
• “Demand continues to be supported by a continuing economic recovery, growth in employment, improving consumer confidence and low mortgage rates”
• The market is cooling after stricter lending rules took effect; the price may decrease soon
• There is “uncertainty over the true state of the housing market”

U.K. Industrial Production Increases Less Than Forecast

• Industrial Production ▲0.3% in June (forecasted ▲0.6%), when it ▼0.6% in May
• ▲1.2% YoY (forecasted ▲1.5%); ▲2.3% in May
• Output in Q2 rose 0.3%, below 0.4% estimated published in last month’s GDP data
• Manufacturers battling a stronger pound and strains in the euro area
• Last week, new orders survey was 51.5
• Showing that factory growth cooled to the slowest pace in a year in July as new orders and output cooled

Thought
     Since few days ago, IMF kept warning that overpriced housing may hurt U.K. economic expansion. U.K. recently got out from recession and fully expanding its economy. Interest rate, which will be decided tomorrow, will be the key for its future growth. BOE would decline the interest rate if it believes housing price is too high, but it is unlikely that the global economy is yet to be fully expanded.

Trade Gap Shrinks to Five-Month Low as U.S. Imports Drop

• The trade deficit in the U.S. unexpectedly narrowed in June
• The biggest drop in imports in a year
• The economy moved closer to energy independence
• The gap ▼7% to $41.5 billion (forecasted $44.8 billion)
• Imports dropped 1.2%
• The drop in purchases of foreign goods include decline in autos and cellular phones, while petroleum imports were the lowest in more than three years
• Yet it seems like to be rebounded by growing household spending and business investment
• Exports ▲0.15 to a record $195.9 billion
• Sales of civilian aircraft, pharmaceuticals and chemicals were among the biggest gainers
• Mixed signals
• Recent data signal a mixed performance for growth outside the U.S.
• In the U.K. index of services expanded in July to the highest level, while a similar measure in the euro area grew less than initially estimated
• China’s growth accelerated for the first time in three quarters after the government speed up spending and freed up more money for loans to counter a property slump

     It was quite a dynamic day. Even the index stayed almost stayed constant, but there were a lot of ups and downs in the market today. Geopolitical risks hit the market, which contributed to decline industrial sectors. Decline in energy import and oil stock raised energy sector.

Despite recession in Italy and decline in factory order in Germany, EUR/USD stayed almost constant, increased by 0.01%