China Trade Recovers But GDP Risks Remain

Trading Tips

Trade Data Improves

The latest trade data out of China has given a further signal that the world’s second largest economy is starting to recover. Following the two months of shut-downs in China, restrictions have started to be lifted over recent weeks, allowing for a pick-up in economic activity. Notably, last month we saw the manufacturing sector recovering back into expansionary territory following a crash to record lows over February. Now we have seen China trade data beating expectations also with the USD denominated trade balance coming in at 19.9 Billion vs 19.7 Billion expected.

The improvement in trade data was fuelled by better readings in both imports and exports data. Exports from China fell just 6.6% in March, marking a far shallower dip than the 14% fall predicted. Similarly, imports were down by just 0.9% on the month. Again, marking a much smaller decline than the 9.5% fall predicted.

Q1 GDP On Watch

There had been grave concerns for the health of the Chinese economy in response to the COVID-19 outbreak which brought the country to a standstill. However, with restrictions starting to be eased there and with data rebounding quickly, there is a hope that the worst of the damage will be confined to Q1.  Q1 GDP data due on Friday is expected to register a 6% decline, following the 6% reading in Q4 2019 which marked the lowest Chinese GDP reading in 30 years.

Risks For Q2

With a negative Q1 print seen as a given, the key now will be how the Chinese economy performs over Q2. There is a risk that despite the quick rebound in some data points, the broader economy will take a longer time to recover. Furthermore, the risk of a second wave of the virus still can’t be ruled out and should lock-downs need to be re-introduced at any point, this would likely lead to a further negative reading in GDP for Q2, marking a technical recession.

Additionally, with economies around the world tanking in response to the global shut-downs being introduced, there is a risk that Chinese exports will suffer more over this quarter than last, which would again be a heavy downward pressure on GDP. With this in mind, the progress of government responses in the US and America will be closely watched by investors over this quarter with a view to gauging the likelihood of further economic damage in China.

Technical View

CHINA A50 (Bullish above 13010.5)

From a technical viewpoint. The Chinese stock index continues to recover this week. Price has now broken back above the key 12618.4 level and is challenging the yearly pivot at 13010.5. With VWAP sitting just above, this is a decisive technical level for the index and a break higher here could pave the way for a much fuller recovery.

China Trade Recovers But GDP Risks Remain

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