China Trade Beats, But Market Remains Ambivalent

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Market Drivers for February 12, 2014
China Trade data much better pushes Aussie higher
All eyes on Mark Carney for BOE Inflation report
Nikkei 0.56% Europe 0.31%
Oil $100/bbl
Gold $1285/oz.

Europe and Asia:
AUD Westpac Consumer Sentiment -3.0% vs. -1.3%
CNY Trade Balance 31.9B vs. 24.2B

North America:
USD Federal Budget 2:00 PM

Chine Trade data suprised to the upside sending Aussie dollar higher in afternoon Asian session trade as the news quelled concerns about economic slowdown in world’s second largest economy. Chinese Trade printed at 31.9B vs. 24.2B with both exports and imports rising by 10%.

Although the numbers were far better than expected the currency saw only a modest reaction to the news as traders remained concerned about the veracity of the data and possible seasonal skews. Several analysts pointed out that the sharp rise in demand did not jive with declines in the PMI data and may have more emblematic of capital flows hiding as trade flows in the wake of clampdown of credit by PBOC.

On the other hand, although overinvoicing has certainly been a problem in the past, most of that activity was directed towards Hong Kong. The latest trade figures however showed a surge in activity with US, EU and even Japan. Despite the fact that doubts may persist surrounding the Trade figures, the data clearly shows that demand in China remains relatively robust and at least for now should allay worries about any imminent slowdown in economic activity.

Aussie was the clearest beneficiary of the the news, jumping to a high of 9068 in the wake of the release, after selling off back towards 9000 in morning Asian trade. The unit continues to recover from its recent lows and all eyes will turn to tonight’s key employment report which now stands as the key data point to either confirm or refute RBA’s move to a neutral monetary stance. If the number simply meets the market expectations and turns positive after two months of contraction in jobs, the relief rally could take the Aussie through the 9100 barrier.

Meanwhile in UK the focus will turn to the BOE Inflation report due in less than 1 hour. Ahead of the event BOE Governor has been repeatedly stating that despite the improvement in UK economic fundamentals the central bank intends to keep rates low for a considerable time. UK is highly leveraged to the housing sector and any hint of increase in rates could stifle out the recovery in that sector. Nevertheless, although Mr. Carney will no doubt hold firm to the dovish stance of the BOE he will have to address the surprisingly strong UK recovery and may have to modify forward guidance as well as provide forecasts for inflation expectations. If those numbers are higher than 2.0%, 24 months forward cable could rally on anticipation that rates will have to rise inevitably. For now cable remains steady at 1.6450 awaiting the report.

Boris Schlossberg
Managing Director

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