The Chinese Data that Lifted Stocks has Gaping Holes

By The Greek:

China reported its March imports increased by 14.1%. Smart money has been hopeful of a middle class growth explosion in China since Nixon opened the door. On the surface, the day’s data seemed to offer some evidence of burgeoning domestic demand for goods and services from hopefully a fast growing Chinese middle class. When it finally happens, China bulls hope it will be a rising tide to lift all ships.

Security	04/10/13 Change
SPDR S&P 500 (NYSE: SPY)	+1.2%
SPDR Dow Jones Industrial Ave. (NYSE: DIA)	+0.9%
PowerShares QQQ (Nasdaq: QQQ)	+2.0%
iShares Russell 2000 (NYSE: IWM)	+1.8%
SPDR Gold Trust (NYSE: GLD)	-1.7%
SPDR S&P China (NYSE: GXC)	+0.9%

Unfortunately, there are some holes in the report. First of all, I think most of us can agree that we can never really trust any data that comes out of China. Also, oftentimes temporary issues like pricing, weather or holidays play roles in lifting a number. It happens all the time in monthly economic data in the U.S., so why not in China? In actuality, two out of the three listed factors here did play a role in making the report seem more bullish than it was.

In fact, closer inspection of the Chinese trade data shows that it likely benefited from following the week-long Lunar New Year holiday, which created some pent-up demand. Higher pricing in crude oil imports certainly lifted the figure as well, given that barrels imported hardly changed while imports were reported up 10.9%.

Strong imports of iron ore were reportedly lifted simply by comparison with a very weak prior month level of imports. For the quarter, iron ore imports were actually about flat against last year. A similar story exists to explain the strong copper import growth in March.

And oh by the way, Chinese export growth, which measures demand from the U.S., Europe and the rest of Asia slowed in March. Obviously, we got a little ahead of ourselves on Wednesday, but with capital continuing to flow into equity funds, what are full pockets to do but find good news where only moderately positive data may exist. The economic situation remains at issue both in the U.S. and abroad, as evidenced by data point after data point. At times, markets and economies diverge, and one is not always a perfect predictor of the other. Even those who argue the market’s case do so based on better economic expectations. However, I think we can all agree that the current situation is still far from adequate.

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