Archived IMT (2011.04.10)

China Trade Balance surprises to the upside. 11th hour deal averts US govt shutdown. Yellen retains dovish tone.

CHINA MARCH TRADE BALANCE showed a modest surplus of $140M but well above consensus estimate of a $3.4B deficit. While the popular press headlines paint the release in more gray tones of the first QUARTERLY deficit in years, the monthly result should be seen as a welcome surprise even to China Commerce officials - late last month, Commerce Minister Deming foreshadowed an even wider deficit than the 7-year high $7.3B seen in February. As we underscored on Friday, EXPORTS component - goods manufactured in China and shipped overseas - are perhaps the most notable part of the report, coming in well above the expected 21% y/y rate of growth at 36%. The data is also likely to be perceived as a boon to the surging AUD given Australia's direct exposure to Chinese demand for hard commodities.

Late Friday night dealing on Capitol Hill finally yielded a BUDGET COMPROMISE between the agreeable Democrats and the increasingly frustrated GOP cowtowing to the fiscally hard-line Tea Party faction. Extended to September, the federal budget saw spending cut to the tune of about $38.5B - above the $33B Democrat target but slightly below the $40B demanded by the House Republican majority. The deal should begin to answer whether the late-session Friday dollar damage was the direct result of increasing US government fiscal uncertainty or a more entrenched weakness on the heels of post-ECB interest rate differential factors. We do allow for the probability of the former playing a part in late-Friday Euro spike and would not be surprised at some modest USD strength in the opening hours of Asia trade.

Speaking at a Yale panel, FOMC VICE CHAIR JANET YELLEN (known for her dovishness back in her days as SF Fed pres) reiterated her dovish bias to Fed policy, suggesting economic conditions remain sufficiently subdued to contemplate an exit from accommodative stance at this time. Yellen once again defended QE2, targeting $2.8T Fed balance sheet at the time of completion of its asset purchase program.

By GG - AshrafLaidi.com