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China will report its trade balance early on Monday, with markets looking at the data for indications about the health of the global economy. Traders have largely moved on from the tariff narrative and are adapting to the “new normal” as other events capture investor concerns. That includes the generalized trend of rising yields over the last week, as economists are increasingly concerned about global government debt levels amid lackluster growth.

A revival of Chinese trade could signal that global consumers are resilient despite the circumstances and that the economy has a chance to grow despite fiscal concerns. Naturally, it will be particularly relevant to countries that do significant trade with the Asian giant, such as Japan and Australia.
 

What to Look Out For

The consensus among analysts is that Chinese trade will accelerate, and the country’s surplus will expand. China’s November trade balance is forecast at $92.0 billion, up from $90.0 billion in October. Exports are expected to accelerate to 3.2% from -1.1%, while imports are expected to advance 2.5% from 1.0% previously.

In October, tensions between the US and China rose, leading to tit-for-tat restrictions on trade. That was in the context of finalizing a trade deal that was announced at the APEC meeting in South Korea. Since then, trade relations have notably improved, which would help expand exports and imports. Analysts believe that Chinese trade growth in November would represent a rebound from the constrained conditions in October.
 

 The Market Reaction

Traders looking for good news could latch onto the trade data as a sign of improving economic conditions. This could support further risk-on attitudes, particularly if the data comes in above expectations. However, a rebound from October doesn’t necessarily mean sustained improvement, and the gains could fade pretty quickly.

On the other hand, markets are already processing disappointing PMIs from earlier this week, and a miss could further reinforce pessimism about China’s outlook. Lately, however, the market has reacted in a “bad news is good news” pattern, as disappointing Chinese data prompts speculation that the government in Beijing will step up stimulus efforts. This might even support a bump in other assets, such as gold, the AUD, and the yen.
 

Aussie in a Holding Pattern

The reaction in the Australian Dollar might be a bit constrained, since the data comes out just a day ahead of the RBA meeting. Markets were surprised a couple of days ago when RBA Governor Michelle Bullock made relatively hawkish comments, and the currency has been trending higher ever since.

Bullock noted that inflation was higher than expected and there was upward pressure on CPI. Notably, she said that the economy might be operating at a higher-than-optimal level. This is a way for central bankers to express concern that economic activity can raise inflation, which is one of the reasons they might raise interest rates. Although markets did not price in a rate hike anytime soon, the AUD will enter next week on a bullish footing.

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