Exports Slow, Pointing to Rising Deflationary Pressures
While the Manufacturing PMI signaled improving demand, China’s trade data painted a gloomier picture. Exports rose 4.4% YoY in August, down from 7.2% in July, marking a sharp loss in momentum and signaling weakening external demand. Notably, Chinese shipments to the US plunged 33%.
Weakening external demand could intensify competition. Rising competition may fuel price wars, passing cost savings on to consumers.
A US-China trade agreement with reduced or removed tariffs could change the narrative. Given China’s new trade routes, increased US demand for Chinese goods could refuel inflationary pressures. However, rising US-China friction and higher US levies on direct Chinese shipments and transshipments may drive deflationary pressures.
Market Outlook: Beijing Stimulus and Looming Data
While China’s inflation, PMI, and export data will influence sentiment, Beijing’s stimulus pledges could cushion the effect of weak numbers. Policy measures targeting the housing market, unemployment, and domestic consumption may lift demand.
Meanwhile, upcoming Chinese economic data will provide traders and Beijing with further insights into the demand environment. Retail sales, industrial production, and unemployment figures for August will face scrutiny on Monday, September 15. Weaker data may pressure Beijing into rolling out fresh stimulus ahead of this month’s Politburo meeting.
Hopes of further stimulus tempered the impact of the CPI and PPI data on Mainland China and Hong Kong equity markets.
The Hang Seng Index rose 0.60% to 26,094 in morning trading after hitting an early high of 26,129. Meanwhile, Mainland China’s CSI 300 gained 0.05%, while the Shanghai Composite Index slipped 0.02%.
