Chinese Trade Data Jumps, Trump Rally Still Has Some Legs

News and Events:

Don’t be fooled by strong Chinese trade data

January’s trade data from China printed much higher than expected with exports in yuan term jumping 15.9%y/y versus 5.2% expected, while imports surged 25%y/y compared to 15.2% median forecast. At first glance, it is tempting to conclude that the Chinese are back on track with the economic machine running at full speed. First of all, the weaker yuan had a massive effect on the trade valuation as in dollar term imports rose “only” by 16.7% (10% median forecast) and exports increased 7.9% compared to 3.2% expected and -6.2% in December. Secondly, the Chinese New Year always clouds economic data in January and February, making it difficult for investors to draw meaningful conclusions on the development of the world’s second largest economy.

We therefore remain cautious not to over interpret these preliminary figures from China, with the exception of the evolution of the foreign exchange reserve – which fell below the USD 3 trillion threshold in January, for the first time since early 2011.

All in all, a weaker yuan should continue to support China’s manufacturing industry that finally started to stabilise throughout 2016. Exports will therefore continue to recover should China’s relationship with the US remain friendly. USD/CNH continued to move toward 6.90 as it reached 6.87 this morning amid the strong dollar rally that has rattled FX market over the last few days.

Trump rally is not over

Yesterday was one of those days when stocks broke their all-time highs. The S&P 500 ended above 2300 points for the first time in history after Donald Trump revealed that he will make a corporate tax announcement within the next two to three weeks.

Equity markets revelled in the news and major indices recorded colossal gains. The Trump rally is not over and the new US president has once again managed to fuel market optimism.

Currency-wise, the greenback is still strong and the promised deregulation by the Trump administration is sending the dollar higher. On top of that, the Fed is expected to raise rates, which would boost dollar demand as other major countries are not expected to raise rates.

As a result of yesterday’s comment, gold took a hit and has lost almost 1% in the last 24 hours. We nonetheless believe that political and economic uncertainties are high in the medium-tern and we would take the opportunity to reload bullish positions.

Today’s Key Issues (time in GMT):

• Jan CPI MoM, exp -0,10%, last 0,00% DKK / 08:00
• Jan CPI YoY, exp 0,80%, last 0,50% DKK / 08:00
• Jan CPI EU Harmonized MoM, exp 0,00%, last 0,10% DKK / 08:00
• Jan CPI EU Harmonized YoY, exp 0,80%, last 0,30% DKK / 08:00
• Feb 3 Money Supply Narrow Def, last 8.71t RUB / 08:00
• Dec House transactions YoY, last 17,30% EUR / 08:00
• Dec Industrial Production NSA YoY, last 3,20%, rev 3,30% EUR / 09:00
• Dec Industrial Production WDA YoY, exp 3,20%, last 3,20%, rev 3,30% EUR / 09:00
• Dec Industrial Production MoM, exp -0,10%, last 0,70%, rev 0,80% EUR / 09:00
• Dec Visible Trade Balance GBP/Mn, exp -£11450, last -£12163 GBP / 09:30
• Dec Trade Balance Non EU GBP/Mn, exp -£3300, last -£3577 GBP / 09:30
• Dec Trade Balance, exp -£3500, last -£4167 GBP / 09:30
• Dec Industrial Production MoM, exp 0,20%, last 2,10% GBP / 09:30
• Dec Industrial Production YoY, exp 3,20%, last 2,00% GBP / 09:30
• Dec Manufacturing Production MoM, exp 0,50%, last 1,30% GBP / 09:30
• Dec Manufacturing Production YoY, exp 1,70%, last 1,20% GBP / 09:30
• Dec Construction Output SA MoM, exp 1,00%, last -0,20% GBP / 09:30
• Dec Construction Output SA YoY, exp -0,50%, last 1,50% GBP / 09:30
• ECB’s Mersch Speaks in Hamburg EUR / 09:50
• ECB’s Weidmann Speaks in Hamburg EUR / 10:00
• Dec Industrial Production YoY, exp 1,20%, last 5,70% INR / 12:00
• Dec Trade Balance, exp 9.5b, last 9.1b RUB / 13:00
• Dec Exports, exp 28.4b, last 26.6b RUB / 13:00
• Dec Imports, exp 19.3b, last 17.5b RUB / 13:00
• Jan Unemployment Rate, exp 6,90%, last 6,90% CAD / 13:30
• Jan Import Price Index MoM, exp 0,30%, last 0,40% USD / 13:30
• Jan Net Change in Employment, exp -10.0k, last 53.7k, rev 46.1k CAD / 13:30
• Jan Import Price Index ex Petroleum MoM, last -0,20% USD / 13:30
• Jan Full Time Employment Change, last 81,3, rev 70,9 CAD / 13:30
• Jan Import Price Index YoY, exp 3,40%, last 1,80% USD / 13:30
• Jan Part Time Employment Change, last -27,6, rev -24,7 CAD / 13:30
• Jan Participation Rate, exp 65,8, last 65,8 CAD / 13:30
• Jan NIESR GDP Estimate, last 0,50% GBP / 15:00
• Feb P U. of Mich. Sentiment, exp 98, last 98,5 USD / 15:00
• Feb P U. of Mich. Current Conditions, last 111,3 USD / 15:00
• Feb P U. of Mich. Expectations, last 90,3 USD / 15:00
• Feb P U. of Mich. 1 Yr Inflation, last 2,60% USD / 15:00
• Feb P U. of Mich. 5-10 Yr Inflation, last 2,60% USD / 15:00
• Jan Monthly Budget Statement, exp $45.0b, last -$27.5b USD / 19:00
• Jan Money Supply M2 YoY, exp 11,30%, last 11,30% CNY / 23:00
• Jan Money Supply M1 YoY, exp 20,20%, last 21,40% CNY / 23:00
• Jan Money Supply M0 YoY, exp 8,90%, last 8,10% CNY / 23:00
• Jan New Yuan Loans CNY, exp 2440.0b, last 1040.0b CNY / 23:00
• Jan Aggregate Financing CNY, exp 3000.0b, last 1630.0b, rev 1626.0b CNY / 23:00
• Jan Foreign Direct Investment YoY CNY, exp 1,40%, last 5,70% CNY / 23:00

The Risk Today:

EUR/USD‘s selling pressures continue towards strong hourly support given around 1.0620. Theb a break of this level would pave the way towards stronger hourly support at 1.0581 (16/01/2016 low) and 1.0454 (11/01/2017 low). Expected to see continued consolidation. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD is still trading below resistance given at 1.2771 (05/10/2016 high). The technical structure suggests that the pair should back bouncing lower towards support given at 1.2254 (19/01/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY is slowly pushing lower towards support at 111.36 (28/11/2016 low). Hourly resistance is given at 115.62 (19/01/2016 high). The break of hourly support given at 112.57 (17/01/2017 low) has confirmed bearish pressures. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF‘s momentum is still bearish despite ongoing increase. Key resistance is given at a distance at 1.0344 (15/12/2016 high). We believe that the road is clearly wide-open for further decline if the pair does not break parity. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.