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China is Important

June 10, 2011 – 4:59 pm

This morning we had some economic news out of China showing that their exports slowed even while their surplus widened. The surplus was expected to be much higher. Exports for the month rose 19.4% from a year ago for May but were down from 29.9%. That blistering pace was not sustainable and export growth is still strong at a 19.4% growth rate. Imports increased as well up 28.4% for May from 21.8%
growth in April. That was more than the 22% growth expected.

It is interesting that though growth of imports to China was strong the report itself is considered weak. They have been trying to slow their economy and it looks like they are succeeding to a small degree.
The thinking is that global demand is weakening. The export numbers suggest that they are coming off a higher level and despite being strong the direction is changing downward.

The Chinese government started tightening their money supply some time ago to fight an increasingly difficult inflation problem. We have seen some evidence that it is working but next week China will be releasing their equivalent of our CPI. It is expected to come in at an increase of 5.4% year over year. That is a slight increase from the month before. The reason why it is important is that China would continue to squeeze their money supply to slow down their economy if inflation continues to increase and that has a worldwide impact because it slows imports and exports.

It’s a world economy that we have to watch not just what’s going on in the U.S. Of course we have seen commodity prices weaken in the last month or two but it takes time for that to show up in the economic statistics.

Good Trading
Steve Peasley

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