Fears about a slowdown in China’s economy have been exasperated by very disappointing trade numbers for March. Exports fell 15.0% in the year to March, completely missing an expected 9.0% gain. Imports also missed the mark at -12.7% y/y (exp. -10.0%), adding to fears about the health of domestic demand. It’s worth noting that the accuracy of these numbers is being drawn into question after months of volatile data due to the timing of Chinese New Year celebrations this year and last year, but they are still concerning.
The export market has been a source of hope for China bulls in recent months and today’s data undermines that belief. The market is already concerned about the economy due to a weak property market, soft consumer demand, and persistent disinflation in factory gate prices due to massive overcapacity. This means that exports are now faltering at a time when consumption and investment have already cast doubt over the strength of the economy, despite Beijing’s attempts to stimulate growth.
In an attempt to fight the slowdown, the PBoC has loosened monetary policy and Beijing has even introduced mild fiscal stimulus. The central bank has cut interest rates twice and the RRR once in recent times, while the finance ministry announced last month that local governments, who are massively indebted, would be allowed to swap some of their crippling high-interest debts for cheaper-to-finance bonds. Yet, today’s numbers add to our case for further stimulus from Beijing in coming months.
Prior to today’s disappointing Chinese economic figures NZDUUSD was testing a resistance zone around 0.7550, before it plummeted through 0.7500 after the figures were released. Price action is now finding some support around its 50-day SMA ahead of another resistance zone around 0.7400. There is also a potential bearish head-and-shoulders formation in price; we’re waiting for a break of neckline support before becoming too bearish (see chart).