Australia’s Trade Surplus is great news. It means, at least for the moment, China/Asia and the rest of the world will continue to support the economy as they did during the Global Financial Crisis. Exports were up a whopping 5.1%.
Imports, meanwhile, are not so impressive at just 0.7%. Hence the record overall surplus.
However, that quite modest import number is a serious concern and warning bell as to the true state of the domestic economy. Imports have been flat for the past five months now. The many forces confronting the domestic economy, skyrocketing inflation in precisely the areas that most impact Australian families, food and energy, as well as a dwindling Covid stimulus push along, and in the midst of this an entrenched must hike rates RBA, are potentially overwhelming.
Mortgage stress, business loan stress, and in every area of the economy recent and future RBA rate hikes will continue to hit hard.
Offsetting this bearish tone on the imports number, there is however the hope that some of the slow down is due to continued shipping line disruption. Which we all know has been severe over the past two years. Things are returning to normal, but as the children in the back seat are all too aware, we are not there yet!
Repercussions of Pelosi’s trip to Taiwan
Another cautionary tale in the face of the current market rally is the Pelosi trip to Taiwan.
It is not over —the repercussions —for they are only just beginning. China fighter aircraft were in proximity to Pelosi’s plane, though she is now safe and sound in South Korea.
Behind her, however, has seen a flight of 27 attack aircraft approach Taiwan, sending defence personnel to a trigger state. China is now warning all commercial international flights to stay out of certain areas surrounding Taiwan. Due to the risk of heightened military action.
Far worse, will be any economic retardation in the relationship between Taiwan and China as a result of the Pelosi visit. China is already showing signs of restricting trade and business with Taiwan, and this would be a very serious setback for the island economy.
Regarding the relationship with the USA, they are now at a quarter-century low and likely to get worse. The general public reaction within China is for the government to take far harsher action than it has thus far.
Pelosi’s visit may be a success of some kind in the symbolism of US support of Taiwan, but from every practical vantage point, it is a disaster that will continue to reverberate doing further damage for months, even years, to both the relationships of Taiwan and the USA with mainland China.
Rather than a relief rally on her exit, markets should be considering what just happened in a very large-scale historic context.
Suggest continued caution, despite what is a very emphatic equity market rally at this time. The big picture is still not a happy economic one.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
