Chinese trade surplus shrinks, US ready to impose new duties

Summary:

• Chinese trade balance shows a much lower surplus, but this is not the case when it comes to the US
• US says it will begin imposing 25% tariffs on additional $16 billion Chinese goods in two weeks
• RBA’s Lowe reiterates there is no strong case for a near term rate move, New Zealand’s inflation expectations tick up in Q3

The US dollar is giving back its prior gains while Chinese indices are trading mixed in the morning despite another robust session on Wall Street. The paramount event of the Asian session came from China as the trade data for July were released. Notice that the numbers are the first insight into the new reality after the US tariffs on $34 billion Chinese goods came into effect on 6 July. The overall trade surplus shrank to $28.05 billion from $41.47 billion falling short of the median estimate suggesting a $39.05 billion surplus. Imports were the prime driver for this figure surging as much as 27.3% from 14.1% and easily exceeding forecasts at 17%. At the same time, exports grew 12.2% from 11.2% previously and it managed to beat the consensus at 10%. These numbers could be really interesting as it shows that exports increased despite the tariffs as their impact may have been alleviated by the falling yuan. In this place it’s worth looking back to the yesterday’s Chinese currency reserves showing a negligible change in July in spite of the fact that the yuan was declining. It suggests that the China’s authorities were not too much concerned about its slump as it helped appease the adverse effect of the US tariffs. At the end of the day, a trade surplus with the United States decreased only moderately to $28.09 billion from a record $28.97 billion.

The Chinese trade surplus shrank in July but a fall of a surplus with the US turned out to be much less. Source: Bloomberg

The Chinese trade data came a day after the US had said it would begin imposing 25% duties on an additional $16 billion in Chinese imports in two weeks. The details unveiled that customs will be collecting the duties on 279 product lines (including motorcycles or steam turbines), down from 284 items on the initial list. The new levies are to come into effect on 23 August. Let as remind that this is the remaining part of a $50 billion package the US announced at the beginning of last month (duties on $34 billion goods kicked in on 6 July while subsequent $16 billion were postponed until today). Bear in mind that beside these tariffs the US is still mulling fresh trade restrictions - a 10% tariff rate on $200 billion Chinese imported goods while the rate could be even lifted to 25%.

After (almost) reaching its lower part of the consolidation the EURUSD is rebounding this morning. One may suppose that this move could be extended up to 1.1750 where bulls may again admit defeat. Source: xStation5

Taking a closer to at major currencies the NZ dollar is standing out the most gaining almost 0.3% against the greenback which could be ascribed to the newest data regarding inflation expectations. According to the RBNZ 1-year and 2-year inflation expectations ticked up in the third quarter. The former indicator increased to 1.86% from 1.8% while the latter moved up to 2.04% from 2.01%. By and large, the data did not bring too much in terms of domestic inflationary pressures albeit this could be an important point to watch in the RBNZ’s statement this evening (the statement from the RBNZ’s August meeting will be released at 10:00 pm BST). In turn, the Australian dollar is trading among the weakest currencies, but still up against the buck, following remarks from the Reserve Bank of Australia’s Lowe. The governor repeated that there is no strong case for a near-term interest rate move suggesting that the next move is likely to be up if the economy evolves as expected. He added that timing of a move depends on unemployment and inflation moving to the middle of the target range. Lowe also admitted that a trade war escalation could be damaging for the global economy.

The NZDUSD is bouncing back from its local support area and if it moves through its local supply zone it could continue marching higher toward 0.6850. Notice that the NZ dollar is placed among the most oversold currencies based on the CFTC data. Source: xStation5