(Photo: CGTN)

China's trade data in September shows improving demand in developed markets, especially in the US and Europe and pro-active measures is in need to boost domestic demand.

China's exports to US in September rose 14 percent year-on-year, the highest since February and much higher than the average 5.8 percent growth in past five years. 

Markets believe that the export growth showed the rising trade tension between the world's two largest economies has yet to slow China's outbound shipments to the US, and Shanghai composite index nearly pared all the earlier losses in morning trading session on Friday. 

However, the outlook of China's exports remains challenging before the pick-up in its new export orders, which has been staying below 50-threshold since June.

Some front-loading exports not ruled out 

The solid growth of exports to the US last month reflects the robust demand in the largest economy. Still, some Chinese exporters' front-loading activities shouldn't be ruled out if the US Institute for Supply Management (ISM) manufacturing PMI is a reliable gauge.

China's exports to the US and the US ISM manufacturing PMI have been moving in tandem most of the time during the past five years. However, the later fell to 61.8 last month, third lowest monthly reading in the first three quarters, while the China's exports to the US made biggest increase since February.   

The divergence of the two figures may suggest that Chinese exporters were busy with selling the products to the US before the new tariff on Chinese products worth of 200 billion US dollars taking effect. In other words, investors may need to wait until the end of the fourth quarter to get a cleaner trade landscape between the two largest economies. 

Exports to EU beats expectation

Trade data showed that some Chinese exporters may turn to the European markets under the pressure of US tariffs.

China exports to European Union in September jumped 15.2 percent year-on-year, at the fastest pace since March 2016 if excluding the February reading due to Chinese New Year. 

The move seems contradicting to the Markit eurozone manufacturing PMI, which stands at 53.2 in September, the lowest reading in almost two years. 

However, such pace of exports growth may not be sustainable, as Italy's uncertainties escalate and weigh on the whole eurozone's growth outlook. Italy's GDP growth slowed to 0.2 percent in the second quarter, and its manufacturing PMI's sharp decline in the third quarter points to a weaker growth in the second half of 2018. 

Hence, the weaker demand in the region may not be able to absorb much of extra foreign imports. 

More room for more accommodative monetary measures

A below-consensus imports data suggests that domestic demand remains one of the key drags to China's growth outlook from July to December. 

The country's imports growth slowed to a 14.3 percent year-on-year rise, slower than a 19.9 percent increase in August, showing that domestic demand stayed soft throughout the third quarter, prompting more pro-active monetary and fiscal measures. 

Another indicator worth attention is the growth of imports from Australia slowed to 2.9 percent year-on-year. 

For many years, China has been Australia's largest overseas market for iron ore, which is used for construction. Fewer purchases of those hard commodities indicates a soft industrial demand in China despite recent loose fiscal measures. 

The correlation between China's import growth from Australia and its manufacturing PMI stands at 0.688 for the past five years.

Since the beginning of the second half of this year, rising US bond yields have restrained China's monetary measures in order to prevent the China-US rates spread from narrowing too much. 

However, the US Fed's determination to continuously raise the benchmark policy rate has been seen as good news to US treasuries in the near term, as investors are busy this week with buying safe-haven assets.

This offers clues to the investors that whether a hawkish Fed will ultimately support its bonds market and influence the 10-year Treasuries yield to move back to three percent again. 

Without a sharp rise in US Treasuries yield and dollar index, it's less necessary for emerging markets to follow the Fed to tighten the monetary policy, allowing China's central bank to set a more domestic-driven monetary policy.