The Overnight Report: Questions Over Chinese Data

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By Greg Peel

The Dow closed up 48 points, or 0.3%, while the S&P gained 0.4% to 1632 and the Nasdaq added 0.5%.

Beijing is currently making the preparations necessary to move to a fully floating renminbi. In the meantime, merchants inside China are using every trick in the book to draw in foreign currency and profit from a rising renminbi, on top of using commodity inventories as collateral for financing deals that fly under the radar of lending restrictions. One of the tricks used to punt the currency market is to “over-invoice” exports.

Yesterday Beijing released an April trade balance showing a US$18.16bn surplus, which beat economist forecasts. Imports rose 16.8% year on year and exports rose 14.7% to mark a big turnaround from the March numbers, which showed a deficit balance of US$884m. The export number is nevertheless very much in question.

The problem is that China’s export numbers to the likes of South Korea and Taiwan do not tally up with those countries’ own import numbers, and dollar amounts do not match port movement volumes. The accusation is that exporters are over-invoicing as a backdoor means of engaging in foreign exchange. On the other hand, foreign observers sceptical of the scepticism point to two extra trading days in April 2013 compared to April 2012, which can justify the surplus “beat”.

That’s the thing with Chinese data – we just never know. What we do know is that a lot of government estimation is involved, which is evidenced by the speed in which data are released (eg, Australia’s March trade balance was released on Tuesday, yesterday saw China’s April trade balance), and also backed up by the odd confession from government officials.

The best we can do is take it as read until proven otherwise, which is exactly what the Australian stock market did yesterday in rising 1.1%. The materials sector has been the star all week and the Big Switch continued yesterday, with healthcare the defensive victim this time in falling 2% against the material sector’s 2% gain. Industrials saw a nice 1.6% rise, but this time the banks and telcos were again popular.

There was also positive data out of Germany last night, and one presumes the Germans get their numbers right. A 1.2% rise in industrial production in March beat expectations of a flat result and helped push the euro higher, although the recently released April manufacturing PMI out of Germany points to a slowdown.

There was once again little for Wall Street to focus on last night with no major earnings or data releases before the bell. The big result after the bell was that of News Corp ((NWS)), which was well received and has sparked a 3% rally in the after-market. The regular session otherwise featured an early drop followed by the familiar pattern of buying for buying’s sake. As in Australia, Wall Street is experiencing a switch out of overbought defensives and into previously less sought after cyclicals.

Strength in the euro had the dollar index down 0.4% to 81.94, which provided enough of a reason for gold to recoup Tuesday night’s loss. Gold is up US$21.20 to US$1473.20/oz. Also encouraging the gold bulls is an increasing focus on the still relatively new Shanghai gold exchange, which has seen a big surge of buying interest since gold took its big dive last month.

Alas, if the Aussie is ever to fall meaningfully it will not do so on strong Chinese trade data and a weaker greenback. We do not, of course, want a weak China to be the fillip for Aussie relief, but we would like the greenback to rise from its Fed-manipulated mire. Having traded lower on the back of the rate cut the Aussie seems settled at US$1.0172, but with more risk to the upside than the down.

Base metals prices are a natural winner from the strong Chinese trade data hence all metals rose over 1% in London and copper rose 2%. Spot iron ore rose US20c to US$130.20/t.

West Texas crude also liked the news from Beijing and rose US89c to US$96.51/bbl, while Brent fell slightly to US$104.13//bl following Middle East-driven gains this week.

The SPI Overnight rose 13 points or 0.3%.

National Bank ((NAB)) is the last of three big interim bank reports, due out today, while Commonwealth Bank ((CBA)) will provide a quarterly update next week. ANZ Bank ((ANZ)) goes ex-div today so watch out for the price adjustment. There are also a few AGMs of note being held today, including AMP ((AMP)), Rio Tinto ((RIO)) and Santos ((STO)).

The Australian jobs numbers are out today, along with Chinese inflation data.

Rudi will appear on Sky Business today at noon and again at 7pm for the Switzer report. Tomorrow he will participate in BRR Media's Friday Afternoon Round Table at 1pm.
 

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