Markets price in upside surprise in China’s Q1 GDP after better than expected trade data

China’s trade data came in significantly better than expected in March. Exports in March rose by 18.7% y/y, beating consensus at 14.9% y/y. It was a very strong rebound from February when exports declined 20.6% y/y. China’s export growth has turned positive for the first time since last June.

Imports in March declined by 7.6% y/y, bringing down the trade surplus to USD29.8bn in March, from USD32.3bn in February. On volume basis, China’s commodity imports should see further improvement soon, reflecting some sort of inventory replenishment from Chinese corporates.

Improving sentiment in the sector has no doubt given consumers the confidence to continue restocking despite higher raw material prices. However, import levels could ease lower in coming months if an improvement in fundamentals doesn’t follow through.

"As PBoC currently seems to be interested in USD-CNY stability, we believe that today’s trade data will have a limited impact on USD-CNY exchange rate in the short term. In the meantime, following USD softness, CNY has weakened somewhat against the basket of currencies." notes Commerzbank in a report.

Meanwhile, the market has also priced in some upside surprise in China’s Q1 GDP figures that to be released Friday morning. Gross domestic product (GDP) figures for the January-March quarter will be in focus following the steady slowdown in the Chinese economy in recent years.

Bank of America Merrill Lynch said they expect modestly slower growth in both secondary and tertiary sectors. The bank said strong year-on-year increase in home sales means "real estate growth will likely rebound notably in 1Q from 4Q, largely offsetting lower growth in other service categories."