China June data to show weak trade, further drop in FX reserves

A flurry of data from China in coming weeks is expected to show continued weakness in trade and investment, sluggish industrial output and another drop in foreign reserves, reinforcing views that Beijing will roll out more economic support measures soon.

Weak factory surveys and heightened economic uncertainty following Britain’s vote to leave the European Union have added to views that authorities will ramp up fiscal stimulus and ease monetary policy by cutting interest rates and banks’ reserve requirements in coming months.

Reuters reported on Thursday that the People’s Bank of China (PBOC) also would tolerate a fall in the yuan to as low as 6.8 per dollar in 2016 to support the economy, if it did not trigger a backlash from major trading partners.

Economists polled by Reuters expected June exports fell 4.1 percent, the same rate as in May, while imports likely dropped 5 percent, renewing their decline after only a marginal drop in May raised hopes that domestic demand was reviving.

China’s trade surplus is forecast to hit $46.6 billion in June, from around $50 billion in May.

The consumer inflation rate may have dipped slightly to 1.8 percent in June, which would be a five-month low, while producer deflation may show further signs of moderating, easing strains on companies’ profit margins.

Factory-gate prices are expected to have declined 2.5 percent, which would be the slowest decline since October 2014.

Loan and money supply data may also show signs of moderating.

After record lending by Chinese banks in the first quarter, policymakers seem to have put the breaks on credit as it became clear it was not translating into faster economic growth, while adding to already elevated debt levels.

Banks likely extended 1 trillion yuan ($150 billion) in new loans in June, up slightly from May, the polls showed.

Based on the June estimate, total new loans in the first half of 2016 were less than 10 percent more than the year-ago period, and would put loan growth slightly off the record pace seen in China’s massive stimulus during the 2009 crisis.

Growth in M2 money supply may have fallen to a 13-month low in June, in line with recent calls from the government to reduce leverage.

Forex reserves likely dropped $20 billion to $3.17 trillion, after falling in May to their lowest since December 2011.

After stabilising early this year, China’s forex reserves have begun declining again amid renewed pressure on the yuan, which tumbled 3.1 percent against the dollar in the second quarter, the biggest quarterly depreciation since China established the domestic foreign exchange market in 1994.

Forex reserves data are expected to be released later this week, with trade, inflation and loan figures out next week.

Industrial output, investment and retail sales will be released on July 15 along with second-quarter gross domestic product (GDP).

($1 = 6.6627 Chinese yuan renminbi)

(Reporting by Elias Glenn and Shaloo Shrivastava; Editing by Kim Coghill)

Containers are seen at a port in Lianyungang

Containers are seen at a port in Lianyungang, Jiangsu Province, China, April 13, 2016. REUTERS/China Daily

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