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Free AccessMNI ANALYSIS: Trade Wars Could See Front-Load Of China Imports
--Both China Imports and Exports Could Be Booked Early To Beat Tariff Impact
BEIJING (MNI) - Investors need to keep a close look out for the possibility
that both China's imports and exports fall sharply in the second half of the
year, as trade war uncertainties will push companies to get as much of their
business done in the next few months.
A delegation of U.S. trade officials, led by Treasury Secretary Steven
Mnuchin, will hold trade negotiations with China officials led by the Vice
Premier Liu He on Thursday and Friday. However, with no certainty trade tensions
can be eased quickly, their could be a near-term impact on both imports and
exports.
The official manufacturing PMI data, released Monday, said the new export
order index was 43.9 for small enterprises in April while their new import order
index was 53.0. This shows small companies continuing to increase their imports
of raw materials, despite contracting export orders.
--RARE OCCURRENCE
It is not uncommon for the new import orders to outpace new export orders
for small enterprises. However, it is unusual to see such a disparity between
new import and export orders.
Only twice before -- Nov 2013 and Feb 2017 -- that the spread has been
higher than the 9.1% reported this week. But in Feb 2017, the inventories index
was also low, suggesting the spread was driven by companies' demands to
replenish inventories (the Nov 2013 inventories index was not disclosed).
However, this time around, the inventories index was moderate at 49.5%,
which, therefore, cannot provide a satisfactory explanation for the wide spread.
A more plausible explanation is that smaller companies have been importing
more to save future costs, fearing a trade wars will increase tariffs and import
costs. They would also aim to export as earlier to avoid potential trade
sanctions, also requiring more inventories to be imported.
--BALTIC DRY RALLY
In April, the Baltic Exchange Dry Index fell from 1055 on Mar 29 to 948 on
Apr 6, before rebounding to 1341 on Apr 30, which is the second largest April
gain in ten years. The move higher cannot be explained simply by fundamental and
seasonal factors, with trade uncertainties helping to stimulate trade a possible
factor causing the BDI to rise.
As any trade sanctions happens, they likely take effect in June and
investors need to be aware of possible impacts on trade in the second half of
the year.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$A$$$,M$Q$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.