A surprise rate cut from China’s central bank late last night – a move that shouldn’t be so surprising given the weakness to the early economic data from China for April.
It had a familiar ring to it – surprisingly weak exports, lower imports, modest consumer inflation and intense deflation for manufacturing industry.
So the weak trade report (which was a surprise) and then the tame report on inflation had a quick follow up – the third official interest rate cut in China last night in six months.
Effective from today, the People’s Bank of China the central bank, is cutting the key one year lending rate by 0.25 percentage point to 5.1%. The one year benchmark deposit rate would be cut by the same amount to 2.25%.
It was the third rate cut since last November, and remember, the central bank has also lowered the reserve ratio on banks twice in the same time, freeing up an estimate $US300 billion in extra lending firepower.
Some analysts had forecast the rate cut after the weak trade report and low inflation report at the weekend.
There was nothing in the data to give rise to any optimism that the Chinese economy (and our biggest export market) remains stuck in a below trend rut – much like the Australian economy actually.
Demand for commodities was weak – iron ore imports were flat, oil shipments higher as the government stockpiled oil, steel and other exports higher than usual as manufacturers push unwanted products onto global markets (sparking a rising tide of dumping claims, especially in the US and Europe).
China’s overall trade with the world slumped 10.9% in April from the same month in 2014, yet another reminder of the slowing pace of demand and growth in the world’s economic engine for much of the past decade.
Chinese exports unexpectedly dropped 6.4% last month year-on-year, while imports plunged 16.2%, according to Chinese customs data released on Friday.
The news was surprising seeing the weakness in February and March had been put down to the impact of the Lunar New Year/Spring Festival holidays. It’s obvious the weakness is continuing and won’t go away quickly.
And on Saturday the country’s statistics bureau said producer prices plunged 4.6% year on year in April, the 38th straight month of decline, suggesting continuing weak market demand.
The April PPI dipped by 0.3% from March, a sign the deflation gripping the sector is intensifying. It fell just 0.1% in March from February.
China’s consumer price index grew 1.5% year on year in April, up slightly from 1.4% in March and 0.8% in January, which was the lowest level in more than five years.
On a monthly basis, consumer prices in April fell 0.2% after the 0.5% drop in March.
China’s trade with the European Union, its biggest trade partner, fell 5% in April, rose 2.3% with the US, but fell 11% with Japan.
Total imports and exports in the first four months of the year contracted by 7.6%, making it much harder to hit the official target for a 6% rise in foreign trade this year.
Iron ore imports fell 0.4% from March to total a still high 80.211 million tonnes in April. That was 3.8% down from a year ago. Imports for the first four months were 307.3 million tons compared with 305 million tons in the same period in 2014.
China’s imports of copper rose 4.9% from a month ago to 430,000 tonnes in April, while exports of aluminium and semi-manufactured aluminium products jumped 25% to 430,000 tonnes.
China imported 30.29 million tonnes of crude oil in April (or 222 million barrels), up 13.0% from 26.81 million tonnes in February, although exports fell 6.2% from a year earlier, thanks to lower prices and volumes. China’s imports of crude oil also rose 8.6% from April last year, hitting a new record of 7.37 million barrels per day (bpd).
In the first four months of the year, China imported 110.62 million tonnes of crude oil, or 6.73 million bpd, up 7.8% over the same period last year.
Coal imports fell 26% in the first four months of the year as industry responds to government edicts and taxes aimed at reducing the consumption of coal in urban power plants.
