Record Trade Surplus Helps Offset Capital Outflow Pressures

CNH outperformed the DXY surge through the offshore session on Friday. USD/CNH got close to 6.7700 but couldn't breach this level. We are back around 6.7640 in early trade today. CNH/JPY is back close to 20.00 (last 19.97), gaining just over 1.4% through Friday's session. There appears to be some selling interest in the pair above the 20.00 level, while the 50-day MA comes in at 20.086.

• To recap, yesterday July trade data printed better than expected for exports (18% YoY versus 14.1% expected). This helped drive a surge in the trade surplus to $101.26bn, versus $89.04bn forecast. Imports were slightly weaker in USD terms, +2.3% versus the consensus +4%.
• This continues the recent pattern of export growth printing stronger relative to expectations compared to import growth. The record high trade surplus shows China's resilience to capital outflow pressures in the equity and bond space.
• Reinforcing this point was a decent upside surprise in FX reserves for July, back up to $3104.07bn, versus $3071.27bn in June.
• Import commodity volumes held up well for coal, iron ore and crude oil though. China's imports from Russia were at nearly +50% in YoY in July.
• China's military exercises surrounding Taiwan appear to have concluded, although fresh exercises have commenced in the Bohai and Yellow Seas.
• In terms of Covid developments, the resort city of Sanya entered lockdown on Saturday as case numbers spiked, while Hainan will conduct mass testing amidst rising Covid cases.
• Rules around international covid flights were eased though, with suspensions back to 1 week for planes/routes with 5 covid positive passengers or 4% of the total passengers on board.