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China trade data is encouraging, with solid imports showing that domestic demand is buoyant, says Dariusz Kowalczyk of Credit Agricole CIB.

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02/08/2013 | 06:14am CET


SHOWS: HONG KONG, CHINA (February 8, 2013) (REUTERS - ACCESS ALL)

DARIUSZ KOWALCZYK, SENIOR ECONOMIST & STRATEGIES, ASIA EX-JAPAN, EMERGING MARKET STRATEGY, CREDIT AGRICOLE CIB

system.scripts.

1. REPORTER OFF CAMERA SAYING:

'What is your view on the Euro on the back of political instability and the reading on the ECB meeting this week?'

2. DARIUSZ KOWALCZYK SAYING:

'Well it was really interesting to hear Draghi. You know he made those surprisingly bland comments regarding the currency suggesting that he's concerned about its strength. And indeed so are we because you know, Europe exports a lot and they need the competitive currency. So we continue to expect euro-dollar to finish the year lower. And we think that in the very near term, the political uncertainty in Italy as well as Spain is likely to weigh on the euro. So until we get clarity on Italy and their electoral results and hopefully until those results are positive for market sentiment, euro-dollar could be under, not dramatic, but yet discernible downward pressure.'

3. REPORTER OFF CAMERA SAYING:

'China's trade data came out stronger than forecast - imports up 28.8% and exports up 25% from a year earlier. What do you make of the numbers?'

4. DARIUSZ KOWALCZYK SAYING:

'The data is very good. It shows that Chinese exporters continue to find strong demand abroad. It's very encouraging given that the external environment is not that good. Solid imports point to buoyant domestic demand. It seems that the Chinese economy is firing on all cylinders. And the trade surplus will add to GDP growth in the first quarter of the year. So, very positive data which I think should reassure investors in Asia today, recently shaken by news coming out of Europe. And I would expect that perhaps Chinese equities and regional equities could provide some rebound later in the session and the Chinese currency as well.'

5. REPORTER OFF CAMERA SAYING:

'The PBOC this week said its policy focus had shifted to inflation from supporting growth. How will today's trade data affect the pace of policy tightening?'

6. DARIUSZ KOWALCZYK SAYING:

'Well inflation data should show a decline because of seasonal effects. And in fact, the strong trade numbers are also distorted by Lunar New Year effects. So I think that the PBOC will wait for February numbers and look at the data for the first months of the year together. But the initial signs that we are seeing suggest that indeed they don't have to worry about the growth. And that in the coming quarters, inflation will be rising and will become the key policy focus. This means they will want to have a stronger currency to bring down imported inflation. And they will also want to tighten interest rate policy. We expect rate hikes in the second half of the year and tighter liquidity in the first half of the year.'


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