China Trade Surplus Widens as Exports Suggest an Improving Demand Environment

Highlights

• Trade data from China signaled an improving demand environment, with imports and exports falling more modestly year-over-year.
• Producer and consumer prices failed to impress despite a less marked decline in producer prices year-over-year.
• New Yuan loans from China will garner interest ahead of US Michigan Consumer Sentiment figures.

China Trade Surplus Widened to $77.71 Billion

The Chinese US dollar trade surplus widened from $68.36 billion to $77.71 billion in September. Economists forecast a trade surplus of $70.00 billion.

Significantly, exports fell by 6.2% year-over-year vs. -8.8% in August, with imports down 6.2% vs. -7.3% in August. Economists predicted exports and imports to decline by 7.6% and 6.0%, respectively.

Less marked declines in imports and exports suggest an improving macroeconomic environment. With more stimulus from China on the way, the markets may consider the worst is over for the Chinese economy.

However, the Middle East conflict remains a headwind for the global financial markets. An escalation in the conflict would likely impact supply chains, inflation, and demand.

China Inflation Failed to Impress

Earlier in the Friday session, inflation figures from China also drew investor interest. Consumer prices increased by 0.2% month-on-month in September vs. 0.3% in August, while consumer prices were unchanged year-over-year. Economists forecast an annual inflation rate of 0.2% and for consumer prices to increase by 0.3% in September.

Significantly, producer prices declined by 2.5% year-over-year vs. a 3.0% fall in August. Economists predicted a 2.4% decline.

While falling short of forecasts, the less marked fall in producer prices signaled a possible pickup in demand. Nonetheless, factory prices declined for the twelfth month in a row.

AUD/USD Reaction to the China Trade Data

Before the trade data, the AUD/USD fell to a pre-stat low of $0.63071 before rising to a high of $0.63344.

However, in response to the trade figures, the AUD/USD rose to a post-stat high of $0.63299 before falling to a low of $0.63250.

This morning, the AUD/USD was up 0.19% to $0.63256.

Up Next

New loan figures from China will warrant consideration on Thursday. An increase in new Yuan loans would signal a pickup in economic activity. Economists forecast new Yuan loans to increase from CNY1,360 billion to CNY2,500 billion in September.

In the US session, consumer sentiment will be the focal point. Economists predict the Michigan Consumer Sentiment Index to decline from 68.1 to 67.2 in October.

After the hotter-than-expected US CPI Report, an unexpected pickup in consumer sentiment may incentivize the Fed to hike rates to tackle inflation.