Tuesday, February 10, 2015

China May Be Weaker Than Widely Recognized (excerpt)

China’s imports took a dive during January. The data come in two flavors, i.e., unadjusted and adjusted for seasonality. The latter are provided by Haver Analytics, our data vendor. The news was bad either way. Imports fell 21.1% m/m unadjusted and 9.1% adjusted for seasonality to the lowest since April 2012. Seasonally adjusted exports fell 3.0% last month, but remains near recent record levels.

Some of the weakness in imports might reflect declines in commodity prices, especially for crude oil and iron ore. Furthermore, while the data are seasonally adjusted, doing so can be a bit tricky at the start of the year when the Lunar New Year holiday falls at different times.

Of course, the data might also simply reflect that China’s economy is slowing more than widely expected. Indeed, I found a very strong correlation between the sum of imports and exports (both unadjusted for seasonality) and railway freight traffic. Both series are volatile, and both have been going nowhere since the start of 2012 after rising fast from 2003-2011, with only a brief stop in late 2008.

Today's Morning Briefing: Bottom of the Barrel? (1) Are commodity prices overshooting the downside? (2) Crude oil price rebounds as rig count sinks. (3) For S&P 500 Energy & Materials the worst might be over. (4) Trucking index still barreling along in US. (5) Eurozone retail sales moving higher. (6) Germany benefitting already from weaker euro. (7) China’s imports and railway freight traffic are worrisome. (8) Will Fed tightening steepen or flatten the yield curve? (9) Larry Summers warns Fed that raising rates before inflation returns to 2% could be a catastrophe. (More for subscribers.)

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