Chinese Trade Rockets Higher

Daily Analysis - 10/02/2017

Largest Trade Surplus Recorded in a Year

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Despite recent moves to tighten monetary policy, the People’s Bank of China’s efforts to ease monetary policy over the last year and devalue the Yuan have been effective, with both imports and exports rising dramatically in the latest trade reading.

Chinese Exports Roar Back to Life


After falling -6.20% year over year through the end of December, Chinese exports surged higher during the month of January, exhibiting growth of 7.90% compared to expectations of a 3.30% gain, spurring the biggest trade surplus in a year.  According to the Chinese General Administration of Customs, the surplus reached $51.35 billion, beating expectations of $47.90 billion, and the prior figure which was revised lower to $40.71 billion.

Imports also showed significant gains, climbing by 16.70% over levels reported in January of 2015 while beating expectations of 10.00% growth by a wide margin.  While positive on a headline basis, the figures could change dramatically in February because of the Lunar New Year holiday which has a historical tendency to skew trade figures. In the meantime, the Yuan continues to extend recent losses, with USDCNH higher for a fourth straight session.

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US Indices Reach Records as Jobless Claims Near 44-Year Low


Amid a considerably volatile backdrop, US equity benchmarks managed to reach new heights on Thursday, driven by a number of fundamental catalysts.  The biggest elephant in the room remains US President Donald Trump, who promised a big announcement on taxes would be forthcoming, sending the US dollar back to the upside while bond yields also soared.  Should he be able to implement proposed tax reforms, it could aid economic activity significantly especially if cash repatriation leads to greater investment in US operations.

Aside from Trump, US initial jobless claims came in at 234,000, marking the lowest level since 1973.  However, the slight bump in continuing jobless claims over the last few months should give traders pause for concern.  Nevertheless, equities remained unfazed, with the Dow Jones Industrial Average closing at a new record while futures continue to extend gains in early European trade.

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Japanese Producer Price Swings Positive


Following 21-months of deflation, Japanese producer prices swung into positive inflationary territory during the month of January on an annualized basis.  Headline PPI came in at 0.50% compared to -1.20% during the month of December.  The main driver behind the gains was the surge in energy prices which rose by 22.30% year over year, pressuring the PPI basket higher.

Although the figure is an optimistic reading considering the producers will likely pass these price increases along to consumers in the coming months, the gains could prove temporary once the effect of higher oil and coal prices are completely factored in.   After falling to the lowest point since February, USDJPY has been rebounding for the last two sessions, finding near-term support near 111.50 before rising back above 113.50 overnight.

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Mexico Raises Rates Again


In a highly anticipated move, the Central Bank of Mexico raised the benchmark interest rate by 50 basis points on Thursday to 6.25% amid surging inflation thanks to the steep drop off in the peso over the last few months.  Banxico is keeping an eye on inflation after the headline figure rose to 4.72% on an annualized basis through the end of January.

Compared to December’s consumer price index reading of 3.36%, January’s accelerated pace of price gains has given rise to anxiety amongst policymakers.  The result is projections for additional rate hikes down the road, with another 50 basis point rate hike projected during the second quarter.  However, rising interest rates could choke off growth which is already starting to pullback as evidenced by the fourth quarter figures.  The Peso’s response to the interest rate decision was positive, with USDMXN bouncing off support at 20.300 before rebounding modestly.

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Upcoming Events

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  • Currency
  • Event
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  • 9:30 GMT
  • GBP
  • Industrial Production MoM (December)
  • 0.20%
  • 2.10%
  • 9:30 GMT
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  • Manufacturing Production MoM (December)
  • 0.50%
  • 1.30%
  • 13:30 GMT
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  • Employment Change (January)
  • -5.00K
  • 53.7K
  • 13:30 GMT
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  • Personal Spending (MoM)
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  • 13:30 GMT
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  • Unemployment Rate (January)
  • 6.90%
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