Today was very much a day to be surprised of the data released, or the way the data was weighted and traded.
Here’s a good opening into my own analysis style and ideas, so sit down and enjoy this in the cold December weather. First order of business, what was the released data?
- Japanese Current Account for October: 833 billion yen vs. expectations of 366 billion yen, but lower than the September data.
- Japanese bank lending: up 2.8% in November in YoY terms, up from 2.4% in October (which also set the expectations). Bank lending is accelerating, and this is the highest increase in bank lending since early 2009! (And that data has serious base effects thanks to the financial crisis.)
- On the Japanese GDP side, there was a mixed bag. GDP proved to be rather static to the initial estimate, even though investment and capex had shot higher, and external demand and private consumption were higher than expectations.
- Chinese trade balance data came in at US$54.5 billion, which I count as a major disappointment thanks to import numbers that were not as good as I would have expected.
In Japan, it is very much now a question of whether fast-moving indicators and leading indicators are going in the right direction, and how rough it will be to fight against static forces or lagging indicators. The current account blowout will probably happen in December’s data, and I was wrong for “jumping the gun” on this, when we still have November data to look forwards to. This data should provide more money in the Japanese economy than is otherwise expected, and the analyst expectation of 366 billion yen proves that there is a lot more money to go around.
Still, money in Japan has never, really been the issue. The issue has been people piling the money into mattresses or the even worse idea of putting it in the bank for no interest, or companies simply stacking bills or government bonds on top of each other. Bank lending data for November accelerating 0.4% more than in October indicates that lending really got underway in November. If we count the 2.4% level as a baseline (reasonable assumption given that prior months of data have fallen around here) and that the 0.4% gain is attributable to November alone, we get some really interesting interpretations. Let’s just round it to easy numbers since these changes are small enough. 2.4%/12 = 0.2%. The baseline MoM growth in lending is slightly, slightly lower than 0.2%. However, if we have eleven months of 0.2% growth, and then one month that tops everything up to a total of 2.8%, then that month must have been having growth of more than 0.57%, or an annualized growth in excess of 7%! Bank lending in Japan probably won’t grow that fast in the future (one can dream) but the overall style of reporting the numbers masks a rather massive shift, going from 2.4% to 2.8% in this calculation rather than from 2.4% to 7%!
I have still not gotten a good idea of why the GDP numbers came in so incredibly low given other factors, but these numbers are troubling.
For the day’s really big reporting SNAFU on financial wires there’s the Chinese trade balance data, so please see my take on this data, the analysis surrounding it, and my forecast, after the jump.
Yes, there was a record trade surplus, with imports coming in at -6.7%, and exports being up 4.7%, less than the 8.2% estimate. I largely attribute my export miss to being too quick to call the increase in US import-demand with more people employed (this will likely thus be shuffled to December and January instead) and an underestimation of non-dollar currency exports adjustments. My largest issue was however a miss that the data is reported in YoY terms for the expectations of imports and exports, and thus I missed about 1% in my personal calculations on the export number growth. Still, I do find this data to be a disappointment, and 2-3% higher exports would have been a good signal.
Imports were in-line on the actual data, again the YoY impact making the percent values rather strange, but a MoM fall of 3% doesn’t surprise me at all given the currency data and cratered commodity prices, where I underestimated the impact of the latter for this month.
Comedy time, Bloomberg style.
First, Bloomberg had an article in normal fashion forecasting the collapse of the Chinese economy due to cratering imports implying that the change towards a consumption-led growth is dead and that China’s rulers are set to fail in reforming the economy. Shortly afterwards however, someone with mild sense came to the fore and edited this as crude oil import data was released, and we now see this comedic masterpiece in its stead.
The data shows that crude oil accounted for US$2 billion of the import fall, or about 1.25% of MoM import reductions from oil alone! Lowered import prices will, as the article now states, subdue inflation and allow more easing to be put in place. Although I think that’s a bit early to call, I think it will definitely floor the expectations a bit on the Chinese indices, which are now seeing record inflows as people are lining up to open accounts in what can only be described as a reverse bank run. I don’t know if stockpiles of oil are down, but on a YoY basis, when oil prices have fallen by more than 20% and imports of oil in dollars fall by about 11%… aren’t they importing like 10% more oil?
And then the representative of Bank of America just had to go and shoot himself in the foot, right? Expecting strong trade surpluses for several months to come is just about the dumbest thing unless it’s a very specific (and bold) call for December and January, but I count “several” as more than two. If he had just said “couple” instead.
December is normally where imports peak, but shipping for the holiday season is also really strong and since China runs a trade surplus naturally and December is one of the bigger shipping months, there is little question about a trade surplus here. January is a trickier case, but I think exports will run strong (although with a downtick due to lowered demand globally MoM) and imports might stay rather strong but the trend of January falls will be a problem. A strong trade surplus is still expected given currency shifts and recovery in the US.
February, however, is where Chinese New Year will kick in. This will make China essentially come to a halt in factory production, and imports will still be strong. China often posts trade deficits in the month of the Chinese New Year, and thus with next to no fake invoicing present (which takes way less time to do), there will probably be a rather strong trade deficit in February.
Also… can someone please tell these analysts that China actually is a net importer from most of Asia? Has looking at the data not occurred to these people? Mentioning “a slowdown in Japan” as a drag on growth that they themselves are reporting will likely not be replicated in Q4 data feels incredibly inane, especially when China boosts Korea and Japan, not the other way around. A much lowered yen basis will mean that Japanese and Korean exports to China will be much cheaper, and since Japan/Korea doesn’t export resources and commodities, most of these things will actually be priced in their home currency. Same with Germany. Please, someone tell me that being a top economist at an investment bank is harder than simply saying “China has a massive trade surplus, they must be exporting to everyone. Now please give me a good title and a bonus!”
Sigh… well well, time to look forwards:
My expectations for China trade data, December through March
See above for the reasoning. $ = US$
- Exports: $232 billion
- Imports: $168 billion
- Surplus: $64 billion
- Exports: $215 billion
- Imports: $160 billion
- Surplus: $55 billion
- Exports: $125 billion
- Imports: $140 billion
- Deficit: $15 billion
- Exports: $185 billion
- Imports: $162 billion
- Surplus: $23 billion
Note: I am using an expectation here that China will, essentially, be operating at intermediate capacity for the first week of March as well, and there are dislocation issues (people need to get back to work from their homes, which takes its toll on planning and business) while I count on an uptick in total goods imported thanks to bonuses etc. that will be spent in March, but currency effects will keep this from being as strong as in December. The December value is essentially the midpoint between the high and current value, and as China seems to have a milder winter so far, this might be accurate. Currency expected effects are accounted for. These numbers might represent a very bullish outlook case of Chinese growth, but companies are raising capital and the “groundwork” is being done, so I think this will somewhat shift the capex requirements in the economy.
This type of numbers will probably be very bullish for the stock markets if they turn out to be accurate.