Thread by @Trinhnomics

Good morning 🌞 - #Hongkong is front page news 🇭🇰 & we got:

a) US Mexico tariff off
b) G20 signals more tariffs for tech
c) ECB & Japan find themselves the same future - ageing👵🏻👵, stagnation & sadly NIRP & QE no antidote & maybe quickening the 📉 reut.rs/2K5U0VW

Eyes are on May China trade (May reserves up to USD3.1trn from 3.09) & expectations in USD are:

-3.9% YoY for May (don't forget that state manu PMI declined & Korea exports 📉📉);
Imports expectations -3.5%

We also have Indonesia CPI but won't stop BI from tempting a cut in H2

China exports rose +1.1% YoY in May from -2.7% & imports contracted -8.5% in May in USD terms. Chart 👇🏻 trade in China (imports falling sharply). As data is volatile, I smoothed it out using 3m moving average 👇🏻Notice import contraction deepening (orange) & imports lead exports😬

This is what it looks like year-to-date (Jan to May) in USD: Exports +0.4% YoY😬 Imports -3.7% 😬

Notice imports contracting & remember that the CA for China was 0.4% of GDP in 2018 so that means it's using the CA as a 1st line of defense & that's bad news for Asian exporters🥶

The increase of FX reserves & decline of imports (notice that cumulative increase of exports is only 0.4% YoY ytd) together b/c TRADE BALANCE ROSE.

But don't be excited by this increase (38% increase of ytd trade balance) b/c it reflects CONTRACTION OF DEMAND by China from ROW😬

Let's look at Asia + some key European countries trade w/ China . Let's 1st look at IMPORTS b/c u care about Chinese imports, esp if u're Korean.

Who's up in Q2:
Australia 🇦🇺 up 12% (China infra & housing push - meaning SOE-led FAI)👏🏻
Malaysia & Philippines up too👏🏻

Okay, who's down Q2 so far (April + May) ????

USA 🇺🇸 -25% 🥶
Korea 🇰🇷 -10%🥶
Japan 🇯🇵 -7%🥶
Taiwan 🇹🇼 -8% 🥶
Indonesia -2% 🥶

Germany 🇩🇪& France 🇫🇷 barely up 😬

Trade is fun. Look at this relationship b/n France & the US (obvs French exports include other goodies like wine etc but you can see divergence of performance here).

So more Airbus & fewer Boeing planes? 🤔🤔🤔👇🏻👇🏻👇🏻

Okay, let's look at China imports from Vietnam - rising. Meanwhile, China imports from Korea are languishing.

They reflect both structural & cyclical changes in the region. (Cyclical part is tech cycle & structural is demographics (VN wage costs cheaper)

Let's zero in on Vietnam since it is trendy nowadays to talk about it . First, this is a trend that has been happening for a while now & accelerated after VN joined the WTO & even more so after 2010. The US China trade-war adds another push but trend existed before. See chart 👇🏻

Okay, since we're doing Vietnam, might as well do the US 🇺🇸. China trade w/ the 🇺🇸 below, or shall I say increasingly LACK OF TRADE:

Notice that China imports of US goods COLLAPSING -30% since December 2018 while American imports of Chinese goods contracting -8 👇🏻👇🏻👇🏻

So u're like, if trade b/n China 🇨🇳 & the US 🇺🇸 are declining, surely Europeans can benefit via substitution & arbitrage. Not so fast. China trade w/ Germany is pretty meh. Not as bad as the US but pretty grim too. Imports by China from Germany was -1% YoY in May 😬🇩🇪

W/ the data we have so far since trade-war escalated, we can see that France is benefiting more from the high-tech arbitrage (likely the Airbus factor here vs Boeing). Although Airbus is European, I wonder if it is mostly exported out via France? 🤔🤷🏻‍♀️ (Toulouse?🤔)

Old Tweet of VN exports to the US & China exports to the US a mirror image of each other 👇🏻. And you can see from the China data that activities w/ Vietnam rising for both exports & imports so 1 of the bright stars of gloomy regional & global trade pic🤗

https://twitter.com/Trinhnomics/status/1135796123883298816?s=20

Conclusion:
a) China is using the CA as the 1st line of defense & that means imports down to mitigate downturn of exports & trade balance up but not a good thing for the world;
b) No one is a winner but some are bigger LOSERS🇰🇷🇺🇸;
c) Vietnam affected too but as trade growth slows

Discussed regional trade trends here 👇🏻👇🏻👇🏻 so you can make sense of high frequency data & linking it to other macro trends. Look at trade closely b/c it is 1 of the few data pts difficult to "adjust" & says a lot about the world, both past & future.

https://twitter.com/Trinhnomics/status/1136126483737399296?s=20

If you don't know what a current account (CA) is, please see below. I use CA to reduce my character count & it is a very important concept in macroeconomics as it relates to EVERYTHING (GDP, FX, savings, investment, etc) 👇🏻👇🏻👇🏻

https://twitter.com/Trinhnomics/status/1136186536498569224?s=20

#Breaking South Korea Hong says accommodative policy needed ✂️✂️✂️

Cuts coming in H2 2019 & likely as early as the July meeting 🇰🇷. Yes, Korea is one of the big losers of trade-war given its high export exposure, high semiconductor exposure & high direct exports to China (25%)

Btw, Indonesia May CPI went upward to 3.3% YoY & core rose too but I wouldn't fret about it as growth likely takes center stage after the Jokowi win & Bank Indonesia will likely cut in H2 2019 too.

✂️✂️✂️Rates still too high.

Anyway, what I just showed you is the current account so let me show you the capital account (we don't have this data yet as it's usually lagged so we can look at a proxy using EPFR data)

Capital outflows MASSIVE in May for Korea & China 👇🏻👇🏻👇🏻

This is what it looks like on an FX basis versus USD ytd (think that the BOP is basically CA + financial + errors of accounting)

The KRW weakens most b/c of both CA & capital outflows. China defends its RMB via both the CURRENT ACCOUNT (imports falling) & CAPITAL CONTROLS.

Gotta run but will go over how the CA + capital account + lending by banks etc impact the balance of payments (BOP) & how that impacts FX (obvs depending on also whether central banks choose to fight market equilibrium too through intervetions). Speaking of which, watch the PBOC.

Here is the video where boss of the PBOC discusses FX, BOP, current account & their bias regarding the RMB

👇🏻👇🏻👇🏻

https://twitter.com/Trinhnomics/status/1136872764566990848?s=20