China Trade Data Beats, U.S. Dollar Weaker As Cross-Asset Volume Declines

China trade data beats

China March exports -3.5% y/y vs. -12.8% consensus and imports +2.4% y/y vs. -7.0% consensus, both in yuan terms look good.

One of the main reasons for the export beat is due to backlogged orders that Chinese exporters were not able to deliver in February as factories remained shut, and mobility restrictions were strictest during that period. But challenges facing Chinese exporter in March where benign. However in April while China production engines are lighting up, primary export markets are not consuming due to lockdown

The US dollar trades weaker with cross-asset volatility declining

As China's economy comes back to life, suggesting the proxies who took extreme lockdown measures to contain the virus will soon follow in suit and allow people back to work. Currencies like the KRW and AUD should continue to trade favorably given strong domestic containment safeguards.

But the improved risk tone also has lifted the euro in the Asia session as the US dollar continues to trade weaker when cross-asset vol is declining.

Oil Prices

Oil prices received a small bounce on the trade data, which, as expectedly, showed China importing more crude as industrial engines turned on in March and amid reports of China stockpiling. So this bump is unlikely to stick since it should be priced into the equation.

We know oil demand will probably never return to normal after the Covid19 crisis. Still, it's about how well this essential asset is managed over time so the global economy can remain in a state of stability.

The objective of the oil deal was not to push prices higher but instead stop the bleeding and then let the demand gradually recover over time. Then keeping supply tight but turning on the taps on a graduated basis. The question is, will this strategy be sufficient to push prices above $40 per barrel in the second half of 2020. The OPEC+ agreement provides for supply restraint to continue right through into 2022 – albeit at reduced levels. If you believe that the deal falls apart as prices start to recover in Q3, then we will get to revisit this argument all over again in September 2020.

In the meantime, without having any quantified number of April absolute demand drop, it's tough to formulate much of an opinion as to what direction where the next $ 10 price move is. And as you can tell by the relatively tight ranges in Asia trading session, I don't think I'm alone in that assessment.

Opinions mean little while decomposition means all.

Gold Prices

Profit-taking has set in after some outsized gains overnight on the back of the better than expected China trade data which has lit a fire under risk sentiment