China trade data shows stronger imports but weaker exports


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jan. NFIB Small Business Optimism out at 89.3 vs. 88.0 prior

  • US Dec. Wholesale Inventories out at -0.8% vs. +0.5% expected and revised +1.6% prior

  • US Feb. IBD/TIPP Economic Optimism out at 46.8 vs. 48.8 prior

  • NZ Jan. Credit Card Spending out at +0.5% m/m vs. +0.7% prior

  • US Weekly ABC Consumer Confidence out at -48 vs. -49 prior

  • AU Feb. Westpac Consumer Confidence out at -2.6% vs. +5.6% prior

  • JP Dec. Machine Orders out at +20.1% m/m, -1.5% y/y vs. +8.0%/-10.8% expected and -11.3%/-20.5% prior resp.

  • JP Jan. Dom. Consumer Goods Prices out at +0.3% m/m, -2.1% y/y vs. +0.1%/-2.3% expected and flat/-3.9% prior resp.

  • JP Q4 Housing Loans out at +1.6% y/y vs. +0.8% prior

  • AU Dec. Home Loans out at -5.5% vs. -5.0% expected and revised -6.1% prior

  • China Jan. Exports out at +21.0% vs. 28.0% expected and 17.7% prior

  •  China Jan. Imports out at 85.5% y/y vs. 85.2% prior and 55.9% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Denmark CPI (0830)

  • Sweden Industrial Production/Orders (0830)

  • Norway CPI (0900)

  • Sweden Unemployment (0900)

  • UK Industrial/Manufacturing Production (0930)

  • UK BOE Quarterly Inflation report (1030)

  • US Weekly Mortgage Applications (1200)

  • CA Int’l Merchandise Trade (1330)

  • US Trade Balance (1330)

Market Comments:

Tentative hopes that a solution to the Greek debt situation were temporarily given a boost as rumours circulated late in the NY session that the Euro-zone was about to step in to help Greece with its debt situation. This saw the EUR power to its strongest gains against the dollar in more than two months and recover ground lost earlier in the week. However, the pair gave back some of the gains once a spokesman for the German government claimed the reports were “unfounded”.

However, the WSJ today carries an article that Germany is considering a plan with its European partners to offer Greece and other troubled Euro-zone members loan guarantees in a bid to calm fears of a government default so there may have been some substance to the rumour which, if subsequently confirmed would send the EUR further north in its retracement. Indeed, German Finance Minister Wolfgang Scaeuble will brief lawmakers later today on the steps under consideration to support Greece ahead of the EU summit tomorrow.

GBP suffered early in the European session as weak trade data and Fitch’s reiteration that the UK was among the most vulnerable of AA sovereign ratings kept the pair capped but it managed a late comeback as the EUR pulled higher.

On the data front, although releases were only second-tier, retailers seemed to have something to cheer about. Chain store sales for the first week of February improved with the ICSC index rising 1.4% week-on-week while the Johnson-Redbook index was up 1.7% month-to-date relative to January, even though both reports did highlight that figures may have been distorted by the inclement weather.

So, it was generally a risk-on day yesterday and Asia, to some extent, attempted to embrace the same theme but fell short of pushing risk currencies higher. Japanese data was strong on the headline with machinery orders up a hefty 20.1% m/m, well above even the high end of estimates, and a strong end to Q4 2009. More positives could be garnered from the outlook for Q1 which expects 2% growth.

China’s trade data for January also provided some excitement with exports building on December’s gains to post 21.0% y/y gains from December’s 17.7% while imports surged a dramatic 85.5% from a year earlier although pessimists were quick to point out the low base effect and timing of Lunar New Year last year. The instant kneejerk reaction was to sell risk, but only a tad, with the AUD and EUR falling 15-20 points but lacked follow-through.

Apart from eyes glued to developments in the Greek situation, a more packed data calendar may offer further insight. In the European session we see Danish and Norwegian CPI numbers along with Sweden’s industrial production and unemployment. The major event for the UK will be the release of the BOE’s Quarterly Inflation Report which is accompanied by industrial and manufacturing production. As the last BOE MPC meeting resulted in nothing new, the inflation report is also expected to reiterate that UK inflation will peak at 3% and ease back towards its 2% target level. There is a risk that near-term growth forecasts may be revised lower after the disappointing performance in Q4. This could put a dent in GBP’s attempts to ride on the back of the EUR’s coat tails. The US session features MBA mortgage applications and trade data together with Canada’s trade balance.