90 seconds at 9 am: Chinese import growth slumps to 0.3% in April; Bank of India intervenes to support rupee; Germany says will tolerate higher inflation

 Chinese import growth slumps to 0.3% in April; Bank of India intervenes to support rupee; Germany says will tolerate higher inflation

Here's my summary of the key news overnight in 90 seconds at 9 am, including news from China that import growth in April slumped to just 0.3%.

Export growth of 4.9% was also weaker than the 8-11% expected and suggests the Chinese economy is slowing much faster than many had predicted.

This is crucial for New Zealand and Australia given China is our largest trading partner collectively. The swift decision by China's leadership to stimulate its economy in late 2008 and early 2009 helped cushion the impact of the Global Financial Crisis on New Zealand and Australia.

The rapid slowing of import demand in China has triggered calls for more Chinese monetary stimulus, but there are now doubts that China can repeat its stimulus. See more here at Bloomberg.

There is uncertainty about who is in charge in China as the communist leadership prepares for a once-a-decade leadership change. The Bo Xilai scandal, where one high profile leadership contender was sacked after he was accused of trying to cover up a murder, has dashed hopes for a smooth transition.

Meanwhile, in another sign of trouble in the broader Asian economy, the Bank of India was forced to intervene overnight to bolster the rupee from its record lows vs the US dollar. It ordered all Indian companies to repatriate half of their foreign profits back into rupee to lift the currency. See more here at Bloomberg.

Elsewhere, Germany's finance minister Wolfgang Schauble has backed a Bundesbank comment that Germany should allow a temporary rise in inflation into the 2-3% range, which is above the 2% target set by the European Central Bank. See more here at thelocal.de.

This is increasingly the 'muddle-through' tactic being adopted by central banks and governments to try to reduce the debt burden crushing the life out of developed economies. Central banks are allowing or encouraging inflation to rise above their targets and above the level of short and long term interest rates. This then reduces the real value of the debt and is an effective default by stealth that punishers savers and protects borrowers.

There is now an active debate going on in America where the central bank has held short term interest rates near zero from 2008 til 2014, but is being encouraged to boost inflation to well over 2%.

The Bank of England reinforced this strategy overnight when it kept its official rate at 0.5% and allowed its quantitative easing or money printing programme to expire. Britain's inflation rate is currently at 3.6%, meaning savers are seeing the real value of their savings eroded over time. See more here at Washington Post.

A similar tactic, which is known as Financial Repression, was used during the late 1940s and 1950s by America and Europe to reduce the value of their war debts.

Elsewhere overnight, US and European stock were mildly higher overnight on conflicting news about the European debt crisis. The New Zealand dollar was broadly steady around 78.5 USc.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.


And news just in. JP Morgan has revealed a surprise US$800 million trading loss. Its shares have slumped.
Details here: http://www.forbes.com/sites/steveschaefer/2012/05/10/jpmorgan-dives-afte...

zerohedge ‏ @zerohedge
You are not a true taxpayer if you are not ready to give your fair share to JPM in this time of need           

JPM Couldn't help themselves could they. They weathered the GFC storm, the good times were back, got cocky and pinned the ears back. Ooomph.
USD $800 million? - Quote Finance.Yahoo.com: The USD $2 Billion trading loss is an embarrassment for a bank that came through the 2008 financial crisis in much better health than its peers. It kept clear of risky investments that hurt most of its peers.

This together with this might well be the catalyst to trigger QE3, if Obama thinks it is in his best electoral interest.
NZD/USD shorts should be aware.

Yahoo Finance detail implies the results are $2b loss in the first quarter and $800m loss (and counting) so far this second quarter and could reach $1b 

A Q (actually 2) for you iconoclast. At least one of our local trading banks holds their NZ client FCA funds at JPM. Are you aware of these funds being secured in any way and what would be the obligation of said local trading bank to their NZ customer should JPM go down the gurgler? All hypothetically speaking of course.

would imagine said local trading bank will be reviewing and re-assessing their continued business relationship with JPM. Much the same risks as MF Global and "customer funds" and hypothecation.

Peoples new found understanding of hypothecation and merchant banks proprietary own-account-trading means "get out now" which means a run on the bank.

Main Street must be wondering what was the point of all the "morally hazardous" bail outs if these "masters of the universe" turn around and blow it all.

Laugh of the morning,
One for DavidB, OMG at least....
Guess you wont be signing up....

So steven, did you give permission for your photo to be used on the billboard?
You'll enjoy reading this.

China ceases to purchase Euro debt.....I wonder if Angela M. and Christine L. can at least hear the Coopers toiling away on the lovely casket.
Here lies E.U.an Imperfect Ideal, Sadly executed. 

I find the German comments about allowing higher inflation....  meaningful... Also throw in the French Election result and we have a "political climate" that is accepting of inflation.
for me... it is a small confirmation of my view that we are moving into a, longer term, inflationary climate.

we have a "political climate" that is accepting of inflation.
It was ever thus - a fiat currency demands as much: y=(1+x)^n, where x is the periodic interest rate /100 and n is the # of compounding periods.
The recent inclusion of China into the G20 trading system just delayed the overt outcome by a decade or so.  Wages fell but not certain asset prices

I should have added...  that Central Banks have undergone a paradigm shift.
In my view they are no longer defenders of "price stability"...  ( if they ever were)....
Their paradigm now is  one of being "liquidity providers"...   which is a nice sanitized way of saying that they will step up to the plate with each threat of debt deflation... with each liquidity crisis...
They have the blessing of the "State"....
All Savers .....  beware.
Just my view....of course

You may have seen my recent thoughts in this issue Stephen, that the interest actually subtracts from the money supply. To keep velocity or production up the amount added to the money supply has to be double the interest, or thereabouts. If velocity and/or production falls then more again has to be added. Seems to me that hyperinflation is going to be the net result eventually, as will ever decreasing interest rates.