China April trade data disappoints in both exports and imports

Significant easing in sight in China.

It has been noted that China’s April trade data posted disappointing results in both exports and imports, adding downside risks to activity data (i.e. April IP, FAI and retail sales) due on 13 May and dampening the outlook of an early recovery in 2Q15F.

According to a research note from CCB International, it looks for an interest rate cut of more than 25bp in May should more downside surprise be delivered to the activity and monetary data due next week.

It noted that this is more aggressive than the market’s expectation of a 25bp cut in 2Q15F and would boost sentiment toward more highly geared sectors, notably real estate, insurance, brokerages and infrastructure and utilities, if realized.

Here's more from CCB International:

In April, China’s exports fell 6.4% YoY, in contrast to the market forecast of a 1.6% increase but slower than the 15% decline in March.

Imports fell 16.2% YoY, outpacing the market’s expectation of a 12.2% decrease and the 12.7% decline in March. As a result, the trade balance recorded a surplus of US$34.1b in April, bouncing back from the US$3.1b in March.

The recovery in YoY export growth was mainly led by aluminum related products (Apr: 29.2%, Mar: -14.2%), mobile phones (23.9%, 10.6%) and shipping (38.6%, 22.1%). However, outward shipments of other electronic products remained sluggish, falling at a faster YoY pace in April.

In terms of commodity imports, we see a pullback in demand for iron ore, copper ore and crude oil. There have been reports that a number of infrastructure project launches have been delayed due to poor funding, notably in the local government sector. This is one possible explanation for the sluggish commodity imports in April.

Beijing is pushing hard for the local government debt swap plan in order to unleash local fiscal spending. We think the most likely and sensible move would be injection of liquidity into policy banks via Pledged Supplementary Lending (PSL), such as the PBoC did last year to support shanty town renovation, but at a much larger dose. Such an injection could be used to purchase LG bonds or renew government debt at a lower cost.