Chillin' out till it needs to be funded
Look at investments and trade in Europe and Latin America
The monthly Economic data being put out by India, China, Japan and the United States continues to showcase the pushes and pulls in the global Economy with investments in Europe and Latin America rapidly becoming an exclusive Chinese preserve apart from Germany and the IMF funding up to $130 billion of the new $184 bln funding and the other $54 bln coming from Private Enterprise. As one would appreciate, even in Europe where china is investing in peripherals tranches of 1-5%, the involvement of private enterprise itself in the bailout is quite adventurous and that means that we really are going to stay in the fragile recovery falling back in the well every six months, running in stops and starts.
Similarily Latin America, true to tradition is now facing its own pulls and pushes preferring Domestic investment as the changing nature of international trade with China’ insistence on importing resources and exporting substandard manufactured goods at low prices reaching an anti climax even as trade is denominated in Yuan than in US Dollar.
While we have discussed at length how China’s increasing participation and the increasing US preoccupation with the domestic economy and the skidding dollar remains a safe trade, the Economic push and pullsi in the trade numbers could point to much more fundamental changes in the offing and in fact a couple of new rules for maintaining global balances.
Before we start discussing those deficits and surpluses in trade that have changed a little since the nineties, we would also like to discuss the largest investment mass, i.e. Europe for the couple of Global issues from ECB and BoE’s actions yesterday and last week. While Germany may not have the luxury to afford a relook at its own loss in trade hegemony it has become all too embroiled in the Euro debates. Greek CDS at 17% has become an opportunity for hedge funds as a $3 bln capital base of ECB means that there cannot be any real restructuring of their debt and its a comparatively safe high yield investment with a lot of efficient domestic measures to cut deficits and bring back color in the Euro deal.
Also private enterprise would be only too glad to participate in the Greek bailout whether by Auction(preferred by Germany) or dutch rollover ( preferred by France) and lend a hand as their local trade connections and the yield’s direct transference to inter regional hegemony and increase in their Euro holding is a great motivator.
EM Trades and India and China
The question of an overheated Economy has bothered China since late 2009 and its new development thrust on the domestic economy still not off the blocks after its new five year plan four months ago. However today’s results show a 28% increase in imports, much more than expected and it means that there is already a finite increase in local production . Exports maintained a healthy 19% growth and a surplus of $13 bln instead of an expected $18 bln number underlining hope. Just March two months ago, china had become a eficit state and its currency liberation measures made a lot of sense for it and everyone else. Now, it is actually looking at a late burst of inflation at 5.4% (announcement coming Tuesday) and it may never be able to brake into a deficit as even these imports already containa high non demand led Commodities collateral, stocks of upto 4 million tonnes in metalslike copper and zinc sitting in new Shanghai godowns and waiting to be traded out again.
It has also become a high importer of Oil and it has also become a critical customer for Brazil and Australia, causing their national plans some necessary instability and a slice of fear wrought by overdependence like the Dollar in the previous Century china’s OIL imports are well in check in the May figures but so are machinery imports from Taiwan and the strategy of hoarding commodities for purported domestic demand may well backfire as longer jams strain the infrastructure on the East coast.
The India growth contribution
India”s trade figures on the other hand, where domestic consumption is in fact even lower part of GDP and Credit card debt is falling, the global trade contribution also is currently just 10% of that from /to China and US. India’s growth numbers as will be witnessed next week remain growing in the better 30s and 40s year on year on this smaller base, even as domestic demand falls off from the strain of paying the global dollar for all commodities
But what of this trade is significant
Neither Made in China, Made in India or even Made in US though enthuse investors or consumers and that should be the bottomline for global trade. China and the US remain more important for being larger markets for global goods but providers have to provide volumes and quality at an affordable price. Threats like Default on chinese holdings of US debt in case the approvals for a debt ceiling deal are not through however become new sounding boards for global deals and power equations that could disturb this new stability for growth Global destinations have become passe and global trade the only certainty as Aviation and Digital technologies become a cornerstone for EMs, DMs and the big 3 of India, US and China
The China Power skew in US trade
US trade however gets continuingly skewed with China even as Imports fall off from slower Domestic Demand and a sub 2% inflation keeps talks of a QE2 disaster at bay. While Japan’s shortages led to the US trade deficit falling to $43.7 bln from a nearly $47 bln last month , its share of Exports to china and imports from China skewed up further with the trade deficit with china shooting up 22% in April. Its service exports of $49 bln remains healthy and its total exports of $176 billion also encouraging. Crude is already $100 again, however, and while India is the most impacted by the global rise in Commodities, Chinese and US dips in import could very well be overturned once even an iota of Domestic Demand is engrained and take off improves as per the local agenda and the deflationary spiral avoided by the USA
Not to mention penalties on HAMP, lowest home prices for decades and losing the numero uno status
US Mortgages also continue to be a big loss to the US markets with low prices coupled with poor demand performance in other sectors even increasing the threat of a longer term deflationary spiral. Chinese imports contribute $30 bln in the latest month of April to the US deficit India already maintains a tight control on chinese Electrical and Power generation equipment as that category contributed more than 40% of China’s trade with US in 2010
As we update trade numbers from each country monthly, we’ll come back to more seminal trends as they emerge from this hot bed and a valid source for the next stable phase of global growth