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Trinh

@Trinhnomics

Jul 18, 2019 • 21 tweets • 7 min read • Read on X

Scrolly

Good morning🌞 - very hot & hazy today so my usual morning hike was le short & more like a stroll. Anyway, US data overnight was meh & weakened the USD somewhat. In Asia, the morning started w/ a whimper as Japan exports contracted -6.7%YoY in June & imports worsened to -5.2% 😬

Got BOK decision at 9 & consensus is a hold but think it should cut rates & if not a cut now the next meeting is fair play. Indonesia'll commence its easing cycle or shall I say reversal of last yr's excessive tightening due to a hawkish Fed. Jokowi's infra push needs a nudge 🇮🇩!

Asia exports in June %YoY (in USD so some FX impact):
Vietnam 🇻🇳+8.5%🤗
Taiwan 🇹🇼+0.5%🙂
China 🇨🇳 -1.3% 😬
Japan 🇯🇵-6.7% 🥶
Indonesia 🇮🇩-9% 🥶
India 🇮🇳 -9.7% 🥶
Korea 🇰🇷-13.5% 🥶
Singapore NDOX 🇸🇬-17.3% 🥶

Q: Who's most impacted?
Korea and Singapore, both heavy exporters👈🏻

If u just take a simple average of Asian exports in June then the contraction WORSENED so u can see that things not looking good for economies very dependent on external demand (🇸🇬🇰🇷😉) & also China given its slowdown. Vietnam recorded strong growth & Taiwan nudged to positive🤗

Chart shows Vietnam diverged from Asia's worsening contraction for 3 reasons:
a) Labor costs comparative advantage (inputs like electricity cheap) & tariff arb;
b) Proximity to China so China +1 strategy
c) Gov focuses on this through trade deals & incentives
d) Infra improving

So the BOK move was exciting but let's get back to my regular programming of Asian exports. How about we talk about China trade? U'd like that wouldn't you?

Okay, June trade was not great for China & China is important b/c it lifted the world out of the GFC & now it's tired 👇🏻

How tired u ask? Well, very b/c of high leverage by the firms, which is domestic in nature & also stress by rising risk aversion despite PBOC easing & tougher external environment.

Ok, wut to do? Imports are CONTRACTING & exports a little better but not good. Ytd exports +0%😬

Stats for June %YoY: Exports -1.3% & imports -7.3% in USD; Ok, but u saw that I smoothed it due to volatility of data & trend is negative esp imports.

How negative? Ytd (Jan-June) exports +0% but imports -4%👈🏻! What does that mean?

Trade surplus +34% ytd & that's the bad news😬

No this +34% of trade surplus is not a sign of strength but rather weakness of domestic demand & don't forget that Xi Jinping had that import fair in Nov which hasn't really turned out to be a big beginning for China import soft power. China boosted global growth & now it's TIRED

If China is not importing as much as before (-4% ytd) then we got a global demand problem if NO ONE PICKS UP THE SLACK. The US is somewhat but not really. Not Europe. Not Asia either & defo not Latam or the Middle East.

Okay, so the -4% is really bad news for Korea for example.

So the -4% ytd import contraction is the aggregate & no everyone is losing out on this sagging Chinese demand. Table below show China exports & imports in Q1 & Q2 by %YoY.

A lot to digest here but let's focus on imports in Q2. Look at Korea -14%, Japan -7%; Taiwan -8%; US -28%

Q2 import growth by China is interesting b/c it shows also the UNEVENNESS OF DOMESTIC CHINESE GROWTH. The 6.2%YoY in Q2 u see from 6.4% in Q1 looks smooth but it masks the divergence of performance.

So Australia +11%. Why? Chinese gov is pushing infra to smooth out the biz cycle

What u're seeing in terms of destination of of imports reflect what's going on in mainland China - growth is uneven by ownership of firms, size of firms & by sectors so don't just take 6.2% & call it a day. As always, the devils are in the details & so study the details of data.

Ok, so let's go back to trade. We know imports are -4% ytd & we know that there are bigger losers of this lackluster demand (yes, Korea is a big loser of declining Chinese demand b/c Korea has the LARGEST EXPOSURE TO CHINA as China is its largest export destination: 25% of total)

Australia is a winner of China infra push so anyone studying the AU market studies Chinese policy b/c it's really about what they want to give incentives via taxes, credit & of course SOEs & local govs.

In all, the decline of Chinese imports is bad news & percolates globally.

So China, by using its current account & by that I mean imports, as a 1st line of defense = China stablization of growth is less helpful to the world as before.

This is key & this is why u see languishing regional exports despite China 6.2% YoY GDP growth in Q2 2019 👈🏻

Why is China using its current account (importing less from the world = spending fewer dollars on foreign goods & so helpful to the CNY as the trade surplus rises) as a 1st line of defense?

B/c NO LONGER able to easily GROW export earnings. Exports expand 0% ytd 😬so no growth👇🏻

Let's look at Chinese shipment overseas by destination in Q2:
Australia down -5% in Q2, why? B/c Australia is not doing that well so its demand lower
HK down
India down
Japan down
Indonesia zero growth
Japan down
Korea down
Singapore down
Thailand zero growth
USA down -8% 🥶

Okay, the US is important b/c it is CHINA'S LARGEST DESTINATION BY COUNTRY, making up roughly 16-20% of total exports.

So the decline of US demand by -8% in Q2 & -9% in Q1 is very very bad news for Chinese exporters & so they need to find new markets or ways to arbitrage losses.

The bad news is that this friction to trade w/ its #1 customer is not going away & will be a source of stress into H2 19. Chinese exporters are clever so will offset w/ arbitrage via diverting trade or re-routing investment but bad news is that it's not just the US getting tough.

Btw, trade & investment go together. U know that b/c it's in my pinned tweet & I always emphasize this.

If exports are not expanding & the outlook is murky at best, then u bet the enthusiasm to investment is very curbed. Nominal FAI data remains weak despite the gov's support 👇🏻

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More from @Trinhnomics

Trinh

@Trinhnomics

Jun 27

Good afternoon,

Yes, it has been a while. I have been running around the world & Asia. It was nice seeing so many people and places to share views, but my inner nerdling self fundamentally enjoy sitting at desk listening to music to read and analyze. For those that I got a chance to meet, thank you! People make the world go around - we all yearn to understand our reality & seek to be understood.

Anyway, shall we review first half? And perhaps think about second half 2025, which starts Tuesday next week.

First, we live in a Trump world. By that, we can't escape his decisions, pushing, wanting.

What does he want? That is a question I get a lot. And most people tend to response with this, "He probably doesn't know it himself."

I don't agree. He does. He's clear about it. It's how he gets there and the people that he surrounds himself with to execute it is a big if but not what he wants.

I'll put three things that Trump wants and basically got so far despite everyone calling him TACO (Trump always chickens out).

Three things Trump wants:
a) Tariffs - he likes tariffs. He sees it as a tool to get what he wants, which is to grow US industrial prowess & rebalance US trade. We can disagree on whether this is the right tool or subsidies or industrial policies are better. But tariffs he wants and he gets.

People think TACO is the trade. But tariff is the trade. It's higher. You accept this new normal fine.

I'll give you an example. We got 50% on steel. 25% on aluminum. 25% on auto. +25% fentanyl on Mexico and Canada excluding USMCA products. +20% on China.

And +10% on rest of the world. For China, expires August. For rest of the world, 9th July. Probably gonna get extended.

Read 9 tweets

Trinh

@Trinhnomics

Jun 20

Good morning,

Happy to be back in Hong Kong! The world is on fire, this time, the threat of war widening beyond just Israel and Iran but to the US and that means the gulf.

Meanwhile, Japan sees core inflation rising to 3.7%YoY and this forces the BOJ to hike (it really doesn't want to for many reasons) as it struggles with policy response - note that inflation has been higher than 2% for so long while policy rate is only 0.5%.

So who is most affected by this whole conflict? Well, we all in different ways but the most obvious outcome is oil. Let's take a look.

We Asians IMPORT 69% of oil going through the Straight of Hormuz and the Saudis export the most.

First, let's go through what's happening. Iran has been attacked by Israel and has shown that it is weak. Now that it is weak, it will have to fight back strongly or risk being seen weak.

So it's a question of how it will surrender not whether and when. Will it do that to the US or Israel? It will fight first. Second is the US, will they take this opportunity to wipe out the threat of Iran nuclear power?

If the US is involved, there is a chance of this widening out as US assets in the region will be targets.

Hence the question of the Straight of Hormuz.

20% of global oil consumption flows through the Strait of Hormuz. It is a narrow channel so if that gets choked up, we're looking at a big oil supply shock.

Who's affected? Producers - the gulfs like Saudi, Kawait, UAE.

Who are the importers? Asians, namely China, India, Japan, South Korea. They make up 69% of total imports.

eia.gov/todayinenergy/…

Read 5 tweets

Trinh

@Trinhnomics

Jun 9

Good morning Hong Kong,

Happy to be back in Asia. Paris was great for many reasons - but mostly because the vibe in Europe is much better as people feel more empowered by change that allows people to zoom out from usual distress over political stalemate, even if challenging.

What do I tell clients? Well, the same as I usually do. When you look at data, don't get fixated on a point in a series. Non-farm payroll/jobs data is an example. Markets get so fixated on what the expectations are & whether results are a beat or not. But what we should look at is a trend over time. Revisions happen. Downward revisions or upward. Seasonality happens (strikes/weather/etc). But what does the trend tell you & what does that mean for policy reaction function?

Well, if you zoom out, then what we see is that job gains are SLOWING in the US. And labor market data is lagging.

The ISM, both manufacturing and services, both point to slowing activity.

Meanwhile, we have CPI coming out in May - markets expect 2.5%YoY from 2.3% in April.

So what? What will le Fed do?

Inflation is an interesting figure. Why? Because it mirrors what Trump's doing on tariffs and also the dollar going lower, which means imports cost more now.

Both tell you that US goods inflation should rise over time. But what does that mean for US CPI? Well, most weights for US CPI is housing/services, which are non-tradeable in nature.

So while US CPI is rising, the Fed will want to see if core PCE is rising. Anyway, if employment is softer over time, and inflation is rising, doesn't that constraint the Fed from seeing through the fog and know what to do?

Read 15 tweets

Trinh

@Trinhnomics

May 29

Trump tariffs. Where are the powers coming from? Well, he has a menu of tariff options. It's the only tax that the president can incur without congress.

For Reciprocal Tariffs, he used the International Emergency Economics Power Act (IEEPA), which has an advantage of SPEED and SCOPE but disadvantage in FOUNDATION or legality.

Why? Well, he declared that the TRADE DEFICIT is the national emergency.

The US Court of International Trade said that he MISUSED the IEEPA, as in the foundation of the "emergency" is not right.

Trump team knew this. They know the laws. They decided for SCOPE and SPEED. What happens next?

Well, they appeal. And eventually, it will be the Supreme Court that will decide. But the foundation of his "emergency" was always being questioned.

Irrespective, for markets, there was already a Trump put, and a clear one. He himself sees these "reciprocal tariffs" as maximalist positions anyway.

Remember that he has other powers to choose from. Section 232 has a STRONGER FOUNDATION but takes a while. You need consultation and etc so it takes time.

The +25% steel & aluminum tariffs for example is from Trump 1.0 and he's just removing exemptions + raising alum from 10% to 25%.

Auto tariff is new.

There is a few others that are being "consulted".

Read 4 tweets

Trinh

@Trinhnomics

May 26

Happy Memorial Day to Americans! And good morning to Asia!

Let's talk about something very topical. Debt. Yes, it has risen. How much debt do we have really? Who owns it? Why is cost of debt an issue?

Can the US solve its debt crisis?

This chart is my fav chart. I show stock of debt & then flow of debt (change since 2019 in orange bubble). Debt matters in terms of who owns it, which sector, etc.

Who is the biggest debt of them all? Well, Japan. It is also the biggest creditor to the world (lending money). Japanese debt is unique in that because of weak private sector, the government has been just expanding like crazy because the households and corporates just sit on savings.

Okay, why is this important? Well, those savings traditionally invested in their own debt (used to be very low yielding on the longer end) and also OTHERS' debt, USA + other emerging markets, also Europeans etc.

The Japanese sovereign yield curve is interesting not just for Japanese lifers, banks & JGB strategists but also for everyone else.

What has happened? Well, per usual they will run fiscal deficit. Nothing new. But the BOJ also owns like 48% of this debt and wants to reduce, but very hard because lifers etc don't want to buy so much more of this supply.

So what happens? The yield curve steepens. What is a yield curve? Well, you can borrow short-term (overnight) or for a long time (30 to 40 year in Japan) at a set rate. Japan has been running very close to zero rate for a long time.

So debt is not an issue if your servicing costs were close to zero.

But the longer, esp the 40-yr is now 3.5%. Yep!
The shorter end, which is policy rate is 0.5%.

This curve is STEEP!

Read 13 tweets

Trinh

@Trinhnomics

May 14

Good morning,

US April inflation came over night softer, and that's no surprise really - we knew that energy, food and service costs were going lower. Everyone said, well, what pain for China if April exports were strong, not to the US of course, but to the world (+8.1%)YoY. The same is said about US CPI. It's actually slower to 2.3%YoY despite a very soft USD & tariffs that started since February.

What does that mean? Why did the the US-China both come to the table to stop the embargo of trade?

Can both of these arguments be true? Of course. First, we must talk about these different balance sheets. They are one and the same. But they interact differently.

CPI is a domestic phenomenon. US inequality/lack of affordable housing/high costs of college/healthcare/etc are DOMESTIC IN NATURE. We call it NON-TRADEABLE. Sure, higher steel & timber make building a house more expensive. Higher appliances also make it expensive. But let's be honest here, the biggest costs of the house is the land & next costs is the regulations and the permits and the actual time and capital erecting it.

California/NYC/Seattle where the jobs are all have regulations that make it very expensive to build. And that has been the case during LOW TARIFF REGIME.

So listen, just think if you live anywhere. When you get a paycheck, where does your money go? Well, if you rent or mortgage, then it's HOUSING.

Next, if you live in the US and send your children out of state or private for education, it's not a rounding error on two middle class incomes.

Of course, another essential - FOOD.
Another one is transport - that includes FUEL + Car (and indirect cost is TIME).

Goods, while you know, nice to have, durable goods you buy once and hopefully last you a decade or two, like a washing machine or a fridge or a microwave.

Toys, definitely like you buy according to age and once & don't repeat and prolly can get used because everyone disposes of this once the child is done.

So when you look at US inflation, the largest weights aren't GOODS or IMPORTED goods for a consumer.

It may be a very big part of a producer that imports intermediates. Say an oil driller that needs steel to build infra to drill or a domestic producer of appliances that need parts that are cheaper to source, say China.

Irrespective, an AVERAGE American person isn't going to feel tariffs. They will feel it via the news, via tiktok, via social media, via the financial markets that have exposure to the higher costs, but they are not feeling it much if they don't have a lot of financial assets.

So the reality is that inflation in the US is GOING DOWN for core goods. Egg inflation is lower after a flu supply shock. US food exporters will sell more domestically if selling abroad faces tariffs. But food isn't the bulk of inflation.

It's the services like housing etc. And they are going down.

Read 9 tweets

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