- Chinese trade data for January breezed past expectations.
- The timing of Lunar New Year holidays in China, rather than a sudden recovery in trade flows, likely explains the result.
- Morgan Stanley warns the February data may paint a very different picture for China’s trade-exposed sectors.
Chinese trade data surprised many in January with the year-ended change in exports and imports both exceeding market expectations.
Despite well-known volatility in Chinese data at this time of the year, caused by the shifting timing of Lunar New Year (LNY) holidays, markets lapped up the result, suggesting that more than a few believe the worst for Chinese trade flows is over.
This chart from Morgan Stanley suggests those views should be tempered, at least for now.
It shows the sequential monthly change in Chinese exports in January compared to December going back a decade.
Whenever Lunar New Year holidays in China begin in early February, the decline in exports from December is considerably smaller compared to years when holidays begin either in late January or mid-February.
The decline this year was also considerably smaller than that seen in 2018, helping to explain why year-ended exports grew by over 9% in January, bucking expectations for a decline.
As Morgan Stanley explains, this is more than enough evidence to suggest caution towards the result is warranted.
“With the first day of LNY falling in early February, the front-loaded pre-LNY shipment likely concentrated in January this year, similar to the case in 2008, 2011, and 2014,” it says.
“Due to LNY distortions, January or February data alone need to be taken with a grain of salt.
“We expect combined export growth over January and February to weaken from the December quarter last year amid weaker global demand and payback from front-loaded exports, as suggested by a sluggish new export orders index in PMI that tends to lead year-ended movements in exports by around three months.”
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