China Had A Start Start Into The Year, Frexit Is A Live Possibility

News and Events:

Chinese data suggests sustained growth

China’s annual NPC (National People’s Congress) 2017 economic objectives, which included a deceleration of GDP growth target to 6.5% (below 2016 6.5-7.0% target) grabbed the headlines. Yet rather than an indication of weaker outlook this conservative (and mature) number indicates an emphasis on stability rather than boastfulness through economic acceleration. In addition, February FX reserves point to a reversal of capital outflow, temporarily halting doomsday predictions.

January/February industrial production surprised slightly to the upside, printing at 6.3%y/y versus 6.2% expected and 6.0% previous reading. Fixed asset investment accelerated substantially and surged 8.9%y/y, widely above median forecast of 8.3% and previous reading of 8.1%. The only blot on this otherwise encouraging landscape is the retail sales gauge which decelerated to 9.5% (10.6% expected and 10.4% previous). However, in our opinion, the data provided further evidence that China is building towards a strong Q1. On a side note, the softening of rhetoric by US president Trump suggests that a trade war or nation specific traffic is unlikely (although a less punitive trade policy are highly probability). However, as with all populist leaders, when approval ratings sag they resort back to hardliner issues that got them into power in the first place.

On the FX side, after losing more than 1% against the USD since mid-January the Chinese yuan took breather. This morning the renminbi was trading at around 6.91, while off-shore the yuan was trading at around 6.90. We do not expected the yuan to weakness against the USD, at least not at the same pace as last year.

Moody’s estimates growing Frexit risk

The credit rating agency estimates that a victory of Marine Le Pen, even though unlikely is not unconceivable. The National Front President would drive France towards a referendum on the exit of the European Union. Moody’s warns that a return to the Franc would push France to default. Government bonds should be converted into Franc and the Franc would very likely be depreciated.

However we believe that the nightmare promised by Moody’s seems a bit exaggerated especially when looking towards other European’s countries direction such as Greece. This country does not need to exit the Eurozone to be in big trouble. Indeed Greece is living on never-ending austerity policies.

Whatever happens at the French elections, the new president will inherit a country with a ratio debt-to-GDP over than 100%. A Frexit would also push other European countries’ bonds’ yields and grades higher and weaken the single currency.

Today’s Key Issues (time in GMT):

• Feb CPI Core MoM, last -1,50% EUR / 08:00
• Feb CPI Core YoY, exp 1,00%, last 1,10% EUR / 08:00
• Feb F CPI MoM, exp -0,30%, last -0,30% EUR / 08:00
• Feb F CPI YoY, exp 3,00%, last 3,00% EUR / 08:00
• Feb F CPI EU Harmonised MoM, exp -0,30%, last -0,30% EUR / 08:00
• Feb F CPI EU Harmonised YoY, exp 3,00%, last 3,00% EUR / 08:00
• Feb CPI MoM, exp 0,60%, last -0,70% SEK / 08:30
• Feb CPI YoY, exp 1,70%, last 1,40% SEK / 08:30
• Feb CPI CPIF MoM, exp 0,60%, last -0,70% SEK / 08:30
• Feb CPI CPIF YoY, exp 1,90%, last 1,60% SEK / 08:30
• Feb CPI Level, exp 319,54, last 317,5 SEK / 08:30
• Jan Mining Production MoM, last 0,70%, rev -0,30% ZAR / 09:30
• Jan Gold Production YoY, last -7,10%, rev -7,60% ZAR / 09:30
• Jan Platinum Production YoY, last -15,10% ZAR / 09:30
• Jan Mining Production YoY, exp 1,20%, last -1,90%, rev -3,10% ZAR / 09:30
• Jan Industrial Production SA MoM, exp 1,30%, last -1,60% EUR / 10:00
• Jan Industrial Production WDA YoY, exp 0,90%, last 2,00% EUR / 10:00
• Mar ZEW Survey Current Situation, exp 78, last 76,4 EUR / 10:00
• Mar ZEW Survey Expectations, last 17,1 EUR / 10:00
• Mar ZEW Survey Expectations, exp 13, last 10,4 EUR / 10:00
• Feb NFIB Small Business Optimism, exp 105,6, last 105,9 USD / 10:00
• Jan Manufacturing Prod NSA YoY, exp 1,60%, last -2,00% ZAR / 11:00
• Jan Manufacturing Prod SA MoM, exp 1,50%, last 0,30% ZAR / 11:00
• Feb CPI YoY, exp 3,60%, last 3,17% INR / 12:00
• Feb PPI Final Demand MoM, exp 0,10%, last 0,60% USD / 12:30
• Feb PPI Ex Food and Energy MoM, exp 0,20%, last 0,40% USD / 12:30
• Feb PPI Ex Food, Energy, Trade MoM, exp 0,20%, last 0,20% USD / 12:30
• Feb Teranet/National Bank HPI MoM, last 0,50% CAD / 12:30
• Feb PPI Final Demand YoY, exp 1,90%, last 1,60% USD / 12:30
• Feb Teranet/National Bank HP Index, last 200,34 CAD / 12:30
• Feb PPI Ex Food and Energy YoY, exp 1,50%, last 1,20% USD / 12:30
• Feb Teranet/National Bank HPI YoY, last 13,00% CAD / 12:30
• Feb PPI Ex Food, Energy, Trade YoY, last 1,60% USD / 12:30
• Jan Trade Balance, exp 11.6b, last 11.8b RUB / 13:00
• Jan Exports, exp 24.6b, last 31.1b RUB / 13:00
• Jan Imports, exp 13.5b, last 19.3b RUB / 13:00
• 4Q BoP Current Account Balance NZD, exp -2.425b, last -4.891b NZD / 21:45
• 4Q Current Account GDP Ratio YTD, exp -2,70%, last -2,90% NZD / 21:45
• 4Q BoP Current Account Balance, exp -$12.00b, last -$3.40b INR / 22:00
• ECB President Mario Draghi Speaks in Frankfurt EUR / 23:00
• Feb Foreign Direct Investment YoY CNY, exp -4,20%, last -9,20% CNY / 23:00
• Feb Budget Balance YTD, exp -350.0b, last -23.4b RUB / 23:00
• Feb Tax Collections, exp 93663m, last 137392m BRL / 23:00

The Risk Today:

EUR/USD continues to strengthen despite ongoing bearish consolidation. Hourly resistance given at 1.0679 (16/02/2017 high) has been broken while hourly support at 1.0493 (22/02/2017 low). The technical structure suggests deeper increase towards resistance at 1.0874 (08/12/2017 high). 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 continues to edge lower despite ongoing consolidation since the pair has broken support given at 1.2254 (19/01/2017 low). The road is wide-open for further decline. Hourly resistance is now given at 1.2300 (05/03/2017 high). 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 pushing higher towards key resistance given at 115.62 (19/01/2016 high). Hourly support can be found at 113.56 (06/03/2017 low). Expected to push higher. 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 is still riding within uptrend channel and is on its way to monitor support implied by lower bound of the uptrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). Expected to consolidate. 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.