China trade data surprises, Japan's less so

China's trade performance was resilient in May with imports surging more than export growth to surprisingly reduce the monthly surplus, while Japan's first quarter economic output was confirmed.

China's trade performance was resilient in May with imports increasing 26% year-on-year and exports up 12.6% to result in the Chinese trade surplus unexpectedly reducing to $24.9bn from $28.3bn in April. The market had expected a rise in the surplus to $33.3bn.

Japan's first quarter GDP contracted by 0.6% QoQ as initially estimated, as declining consumer expenditure offset resilient investment.

Import and export rates are likely to slow in the coming months, suggested economists at Peel Hunt.

China's export trend was unchanged, but the trend in imports is picking up, noted Pantheon Macroeconomics. "We suspect the uptick in import rises is a product of price effects with the PMIs unanimously pointing to faster input price increases in May, though the price indices that we use for the trade data seem to have be discontinued in February, making it difficult to corroborate that.

"The product breakdowns lend further evidence to this theory, however, with energy import growth in particular remaining speedy in value terms."

Capital Economics noted that export growth edged down to 3.2% from 3.7% in renminbi terms, versus a Bloomberg median of 1.6%. "Adjusting for seasonality and price effects, we estimate that export volumes rose 0.9% m/m in May. The upshot is that there appears to have been an uptick in foreign demand last month, consistent with the improvement in the export orders component of the manufacturing PMIs. Nonetheless, shipments remain a fair bit softer than at the start of the year and a broad downtrend in export growth remains in place."

Capital suggested the pick-up in import growth was buoyed in part by higher import price inflation from rising oil prices. "But even after stripping out price effects, we estimate that import volumes jumped 5.2% in seasonally adjusted m/m terms, reversing most of the decline since the start of the year. This suggests that some of the recent boost to industrial activity from the easing of winter pollution controls may have extended into May."

Looking ahead, there's good news for China in the latest US agreement allowing ZTE to resume operations, which could lead to a deal in order to avert US tariffs.

"That said, even if a trade war is avoided, Chinese trade growth is still likely to edge down over the coming year as the global economy loses momentum and headwinds to domestic demand from slower credit growth intensify," said Capital.

JAPAN

Japan's first quarter real GDP growth was unchanged in the second estimate overnight, with GDP contracting by 0.2% quarter-on-quarter. Growth in the fourth quarter was revised up, to 0.3%, from 0.1% previously. This, however, was a touch weaker than the Bloomberg median of a 0.1% dip.

Private consumption was a little weaker and investment a little stronger, but the revisions were not sufficiently large to move overall GDP growth.

Japan's unadjusted current account surplus fell to ¥1,845bn in April, from ¥3,122bn in March, below the consensus ¥2,077bn.

"Q2 should be better, but trade wars threaten the key external sector," says Peel Hunt.

Capital Economics said the economy is "running into capacity constraints", with the labour market at its tightest in at least two decades and firms are reporting severe difficulties finding staff, which may result in growth slowing this year.