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Daily Insight

8 March 2016

China’s trade data weak, although distorted

Contraction of China’s merchandise exports deepened in February …

China’s trade data for February showed ongoing weakness, although the numbers are

distorted and should be interpreted with care. In USD terms, merchandise exports fell by

25.4% yoy in February (January: -11.4%), while markets had expected a drop of only 14.5%.

The weakness was broad-based, with exports to both the US and the EU tumbling by 20-25%.

Still, China’s trade data at the start of the calendar year are typically affected by the timing of

the Lunar New Year break. In February 2015, export growth was remarkably strong (48.3%

yoy), as a significant part of the disruption from the New Year break was pushed into March

2015. In 2016, the break was earlier in February, so the downward impact on the February

number was stronger. Furthermore, lower export prices also might have played a role.

However, even taking these distortions into account, the ongoing weak export performance is

also illustrative for the weakness in global demand, which seems to have had a stronger

impact than the real effective appreciation of the yuan over the past years.

… while the decline in merchandise imports eased somewhat

Meanwhile, the decline in China’s merchandise imports fell to 13.8% yoy in February

(January: -18.6%), a bit more than markets had expected (-12%). Imports data are distorted

too, reflecting special factors such as the timing of the Lunar New Year, the effects of strategic

buying in December, and the curtailment of overinvoicing practices set up to hide capital

outflows. Moreover, while the import numbers partly reflect the weakness of domestic

demand, particularly in the areas of industry and investment, they are still largely shaped by

the sharp drop in import prices, particularly commodity prices. Estimated import volumes show

signs of bottoming out in late 2015, although the latest estimate is for December 2015.

Given all kinds of distortions, drawing too strong conclusions is inappropriate

Whereas we were not overly optimistic regarding the bottoming out of imports and exports in

December 2015, we are not overly pessimistic now either. Drawing too strong conclusions on

the January and February trade data is not appropriate, given the distortions surrounding the

Group Economics Macro & Financial Markets Research

Arjen van Dijkhuizen

Senior Economist

Tel: +31 20 628 8052

arjen.van.dijkhuizen@nl.abnamro.com

Maritza Cabezas

Senior Economist

Tel: +31 20 343 5618

maritza.cabezas@nl.abnamro.com

Chinese trade data illustrative for weakness in domestic and global demand

However, numbers should be interpreted with care given various distortions

Fed policymakers continue to show uncertainty before March’s FOMC

meetings

We expect the Fed to remain on hold in the coming year

2 Daily Insight – China targets 6.5-7% growth in 2016- 8 March 2016

Lunar New Year break and other special factors. Trade data for the coming months should

provide a clearer picture.

Estimated import volumes show early signs of bottoming

% yoy

Source: Thomson Reuters Datastream, ABN AMRO Group Economics

Fed policymakers continue to show uncertainty before March’s FOMC meeting

In the past few days Fed policymakers have had a cautious tone, but also divergence in views

regarding the outlook. The Fed will hold its next FOMC meeting in 15-16 March. We think that

the Fed will not hike in this meeting and will likely remain on hold in the coming months.

Fed Vice Chair Fischer slightly optimistic on inflation, but cautious on growth

In a speech held in Washington on Monday, Chair Stanley Fischer discussed among other

topics inflation, productivity and the effectiveness of monetary policy at the zero lower bound.

On inflation he mentioned that “we may be well at present seeing the first stirrings of an

increase in the inflation rate - something that we would like to happen”. He supports the view

that the link between inflation and unemployment - although weaker - still exists. This came

alongside more cautious remarks on productivity, a major determinant of long-term growth. He

mentioned that ‘at this stage we simply do not know what will happen with productivity’. As for

monetary policy he defended the effectiveness of quantitative easing and negative rates as

instruments to expand monetary policy.

Brainard cites downside risks and calls for prudent hikes

Another FOMC policymaker Lael Brainard, considered a dove, mentioned that the US

economy was not immune to foreign developments, given the impact of the weak and

decelerating foreign demand and the drag of energy related activities. She raised concerns

regarding the low level of market based inflation compensation. She called for careful

adjustment of monetary policies to preserve the expansion.

-30

0

30

60

12 13 14 15 16

Import values Estimated import volumes

3 Daily Insight – China targets 6.5-7% growth in 2016- 8 March 2016

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Day Date Time Country Key Economic Indicators and Events Period Latest outcome Consensus ABN AMRO

Monday 07/03/2016 08:00:00 DE Manufacturing orders - % mom Jan -0.1 -0.2 0.0Monday 07/03/2016 09:00:00 CH Foreign currency reserves - CHF mln Feb 571.1bMonday 07/03/2016 21:00:00 US Fed Reserve consumer credit - USD bn Jan 10.5 15.3

Tuesday 08/03/2016 00:50:00 JP GDP - % qoq 4Q F -0.3 -0.4Tuesday 08/03/2016 08:00:00 DE Industrial production - % mom Jan 3.3 1.4Tuesday 08/03/2016 11:00:00 EC GDP - % qoq 4Q P 0.3 0.3 0.3Tuesday 08/03/2016 12:00:00 US NFIB small business optimismem - index Feb 92.9 94.2 94.0Tuesday 08/03/2016 CN Exports - % yoy Feb -25.4 -14.5Tuesday 08/03/2016 CN Imports - % yoy Feb -13.8 -10.1

Wednesday 09/03/2016 16:00:00 CA Policy rate - % Mar 9 0.5 0.5 0.5Wednesday 09/03/2016 NZ Policy rate - % Mar 10 2.5 2.5 2.5

Thursday 10/03/2016 02:30:00 CN CPI - % yoy Feb 1.8 1.9Thursday 10/03/2016 02:30:00 CN PPI - % yoy Feb -5.3 -4.9Thursday 10/03/2016 06:30:00 NL CPI - % yoy Feb 0.6 0.6Thursday 10/03/2016 13:45:00 EC ECB Deposit rate - % Mar 10 -0.3 -0.4 -0.5Thursday 10/03/2016 13:45:00 EC ECB Refi Rate - % Mar 10 0.05 0.05 0.05Thursday 10/03/2017 14:30:00 EC ECB Press ConferenceThursday 10/03/2016 14:30:00 US Initial jobless claims 278.0 275.0Thursday 10/03/2016 15/03/2016 CN M2 money growth - % yoy Feb 14.0 13.7Thursday 10/03/2016 15/03/2016 CN New loans - CNY bn Feb 2510 1200Thursday 10/03/2016 15/03/2016 CN Aggregate financing - CNY bn Feb 3417 1780Thursday 10/03/2016 KR Policy rate - % Mar 10 1.5 1.5 1.5

Friday 11/03/2016 08:00:00 DE CPI - % yoy Feb F 0.0Friday 11/03/2016 10:30:00 GB Trade balance - GDP mln Jan -2709Friday 11/03/2016 PL Reference rate - % Mar 11 1.5 1.5

Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected key variables and events)