Chinese Yuan Flat As Imports, Exports Beat Bearish Estimates

The Chinese yuan is flat on Tuesday after new trade data came in better than what the experts had projected. A couple of economic reports from China are highlighting that the situation is not as grim as what many investors first thought. Is the economic fallout from the coronavirus pandemic proving to be a case of hope for the best and expect the worst?

Last month, imports fell 0.9% year-on-year to $165.25 billion, led by increases in crude oil (9.72 million barrels per day), natural gas (6.92 million cubic feet per day), and coal (27.8 million tons). The market had forecast a 9.5% plunge following a 4% drop in January-February. Exports tumbled at an annualized rate of 6.6% to $185 billion in March, led by shipments of steel (2.3%) and rare earth metals (19.2%). Analysts had projected a huge decline of 14%.
In total, China’s trade surplus fell sharply to $19.9 billion, according to the General Administration of Customs. This is higher than the median estimate of $18.55 billion. Beijing’s trade surplus with the US plummeted from $25.37 billion in January-February to $15.32 billion in March.
The world’s second-largest economy has hit the reboot button in the aftermath of the COVID-19 pandemic. The country is providing a glimpse into what life in a post-coronavirus world looks like, but experts warn that China’s recovery will be gradual because of contracting international demand for its exports, which is essential for the domestic economy. There is also fear of a second wave.
Analysts have been combing through all of March’s data to find some semblance of recovery. The producer price index (PPI) slumped 1.5% last month from a year earlier, while consumer inflation eased.
Moving forward, the major point of contention will be China’s deflation. Due to oversupply, low crude prices, and an overall decrease in the factory gate gauge are prompting deflation concerns for the near-term. This comes as the federal government and the People’s Bank of China (PBoC) have unleashed a tsunami of fiscal and monetary stimulus tools to shore up the economy, encourage bank lending, and cushion the stock market.
In the first quarter of this year, bank loans topped $1 trillion due to lower interest rates, a reduction in the reserve requirement ratio (RRR), and support from officials.
The primary measurement will be the gross domestic product (GDP) reading in the first and second quarters. The consensus is double-digit contraction in Q1, but economic growth in Q2 is a toss-up – authorities are aiming for nothing less than 5%.
The USD/CNY currency pair tumbled 0.03% to 7.0507, from an opening of 7.0526, at 14:18 GMT on Tuesday. The GBP/CNY rose 0.6% to 8.8846, from an opening of 8.8249.

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