Capital Markets: "China Reports an Unexpected Jump in Exports, While Norway Surprises with a Rate Cut"

From Marc to Market:

Overview: There is a sense of indecision in the air today. There have been several developments, but investors seem mostly reluctant to extend positions. China reported a surge in exports in April and an increase in the value of reserves. Australia reported a rise in exports in March. The Bank of England left policy steady, but clearly signaled it was prepared to boost its asset purchases. Norway unexpectedly cut rates. For the second consecutive session, US equities sold-off late. This seemed to weigh on Asia Pacific trading. The Nikkei edged higher, but the Topix fell, and Taiwan was the only other notable exception to the heavier performance in the region. Europe's Dow Jones Stoxx 600 is firm though within yesterday's range. US stocks are also higher, but the key is the 3000 area of the S&P 500. Yields are firm, with the US 10-year benchmark near 70 bp. European yields are a few basis points higher, and the premium the periphery pays over Germany is wider, though Italian bonds have recovered in late European morning turnover. The dollar is mostly softer, with the yen, euro, and Swiss franc the exception among the majors. Emerging market currencies are also mostly higher, but the Turkish lira fell to record lows. Gold is steady but is struggling to regain the $1700-perch. June WTI is hovering around $24 a barrel.

Asia Pacific
China's Caixin service and composite PMI showed a little improvement but still below the 50 boom/bust level. The services component rose to 44.4 from 43.0, and the composite rose to 47.6 from 46.7. The bigger development was with the April trade figures. Exports rose by 3.5% from a year ago. The median on the Bloomberg survey anticipated an 11% decline. Imports fell 14.2%, while economists had expected a 10% drop. The net result was a $45.3 bln trade surplus, five-times larger than projected. This brings China's surplus to almost $150 bln so far this year compared with an $85.5 bln surplus in the first four months of 2019.

US President Trump said the administration will be prepared in the next week or two to offer an assessment on progress with the trade agreement. However, between the drop in energy prices, the cheap Brazilian soy (sharp currency depreciation), and the uneven impact and recovery from the coronavirus, there can be little doubt that China will struggle to fulfill the agreement. Separately, the Trump Administration has delayed its first report on the state of Hong Kong's autonomy, seemingly to wait to see what happens ahead of the National People's Congress later this month. While there is concern that China is playing a larger role in HK, the US may be hesitant to take-away the SAR special trade status, which would be seen as a dramatic escalation and a major disruption.

China reported its reserves unexpectedly rose by nearly $31 bln in April to $3.09 trillion. Its reserves had fallen by near $55 bln in February and March. While it is tempting to suspect valuation was the key driver of the increase in reserves, the other reserve currencies, like the euro and yen, were virtually flat in April. Sterling was up 1.4% last month. Treasury and Bund yields fell slightly (~3 bp and 11 bp, respectively).

Australia reported a 15% surge in March exports after a 9% drop in February. Imports, however, did not recover and fell another 4% after 5% in February. The net result was a A$10 bln trade surplus, well above expectations. Separately, Australia reported that is reserves fell sharply in April to A$63.2 bln from A$90.6 bln. This partly reflects that the reserves are reported in local currency terms and the Australian dollar appreciated by more than 6% last month. Still, the reserves at their lowest level since January 2019....

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