China Reports Unexpected Trade Deficit
(For February 2011)
China trade balance was reported at USD -7.3 billion vs. USD 6.45 billion in January and USD 4.9 billion consensus. Export and import growth were running at 2.4 and 19.4 percent vs. 37.7% and 51.0% y-o-y in January.
Large unexpected surprise, but something I hinted earlier in my dry bulk weeklies. Concerning deficit itself it’s probably result of seasonal effects (Lunar New Year) and POBC tightening measures. I expect some normalization in March, but nevertheless the market reaction could be violent in coming days because this is a game-changer, especially in relation to yuan appreciation calls.
POBC tightening to contain inflation will probably have to be relaxed or even reversed because Chinese government faces two alternatives: 1. higher growth & higher inflation vs. 2. lower growth & lower inflation. The outcome of this is pretty clear.
