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US Inflation Shows Upticks China Trade Data Falters

Contributed by Jeff Cheah, Strategic Sales Manager




US Inflation Prints Showed Upticks in July | skip to SGD/CNY


U.S. inflation, which has been showing signs of decline, showed an uptick in July. On the evening of August 10, the U.S. Department of Labor released data showing that the CPI in the U.S. rose by 3.2% y/y in July, compared with the previous value of 3%, ending 12 consecutive months of decline. In addition, the core CPI increased by 4.7% y/y, and the growth rate only dropped by 0.1 percentage points.

Among them, energy prices have become the main driver of inflation. Gasoline prices rose 0.2% and electricity prices fell, while the natural gas index rose 2% month-on-month after five consecutive monthly declines. The average price of a gallon of gasoline is now $3.89, the highest since October 2022. Oil prices have been rising, mainly due to production cuts by major producers such as Saudi Arabia and Russia.

We also saw a slew of Fed speaks last week, bringing interest rate policy languages once again to the forefront. Fed Governor Michelle Bowman said the Fed may need to raise interest rates further to fully restore price stability. "Further rate hikes may be needed to bring inflation down to the FOMC's 2 percent objective," Bowman said.

"Further rate hikes may be needed to bring inflation down to the FOMC's 2 percent objective," Bowman said.

In speeches prepared for a Kansas Bankers Association event in Colorado on Saturday, Bowman said she supported the Fed's decision to raise rates at last month's meeting.

While data released since then have shown slower price growth, Bowman said she would like to see more evidence of persistent deflation.

"The recent lower inflation data is positive, but I will be looking for consistent evidence that inflation is falling meaningfully toward our 2% objective as I consider further rate hikes and the need for the fed funds rate to be at a restrictive level. How long does it stay level?" she said. "I would also watch for signs of a slowdown in consumer spending and signs of easing labor market conditions."

The Federal Reserve raised interest rates in July, and the federal funds rate rose to a range of 5.25% to 5.5%, the highest level in 22 years. The median estimate of Fed officials’ latest quarterly projections, released in June, suggested two more rate hikes this year, the first of which came after last month’s hike.

Bowman said policymakers will assess incoming data and should be willing to raise rates in the future if inflation progress stalls. The Fed will hold three more policy meetings in 2023, with the next meeting in September.

China Export Down Cycle Lowest in July

China’s export value in July this year came in at USD 281.76 billion, a y/y decrease of 14.5% while imports were USD 201.16 billion, a y/y decrease of 12.4%.

In July, the y/y decline in China's exports widened[1]. The key factor was that the base in the same period last year was too high. In addition, in terms of absolute value, the super-seasonal decline in export value indicates that the overall situation of exports is still relatively severe.




Fundamentally, the strength of global economic growth momentum is the core determinant that determines the growth or decline of exports. With the global economy still in a downward trend, it is too early to say there is a fundamental improvement in the export situation. In terms of year-on-year growth rate, July may be the lowest point of this round of export down cycle, and the export decline will accelerate and narrow in the second half of the year and may enter a pressure range again early next year.

From the perspective of specific export commodities, electromechanical products are still the main drag on exports. With the emergence of the inflection point in semiconductor sales, the growth rate of mobile phone and integrated circuit exports has increased compared with the previous value. The growth rate of automobile exports is still high but marginally slowed down. It is still the commodity that stimulates the overall export the most, and the export of bulk products such as energy and chemical products shows the characteristics of increasing volume and decreasing price.

From the perspective of exporting countries, the decline in exports to the United States narrowed, and the sharp decline in exports to the EU that month may be related to the divergence in the prosperity of manufacturing industries of the two countries (regions).

The decline in exports to major Asian countries has narrowed, but the growth rate of exports to Singapore has dropped sharply compared with the previous value, resulting in a wider decline in exports to ASEAN. Exports to Russia dropped from a high level, but they were the only ones with year-on-year growth among the major exporting countries in the month.

Overall, the further pressure on exports has not exceeded general expectations. Although the short-term situation may not improve significantly, it is expected that the -14.5% decline in exports may bottom out in stages, and the decline in exports is expected to narrow in the second half of the year. Among them, electronic products are expected to become the key driver for the recovery of exports. The more-than-expected contraction of imports is not sustainable, and the price-dragging factor is expected to gradually weaken in the context of the rebound in commodity prices. As domestic inventory depletion comes to an end, the supporting role of imports will strengthen.

At this juncture, we see the support of SGDCNY at 5.3373. Any strengthening of CNY is likely to be driven by green shoots in China’s macroeconomic data.

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