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Mid-Day Market Report 12 Feb 2014: Strong China January trade surprised markets, but doubts rise

Japan core machinery orders drop 15.7 percent in December

A Government data showed today that Japan’s core machinery orders fell 15.7 percent in December, dropping for the first time in three months after a hefty gain in the previous month. The month-on-month fall in core orders, which exclude those of ships and electric power utilities, compared with a 4.1 percent drop forecast by economists in a Reuters poll. It followed a 9.3 percent gain in November, the Cabinet Office data showed. Companies surveyed by the Cabinet Office forecast that core orders will fall 2.9 percent in January-March, after increasing 1.5 percent in October-December, which was the third straight quarter of gains. Compared with a year earlier, core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, increased 6.7 percent in December, against a 17.6 percent gain expected.

 

Strong China January trade surprised markets, but doubts rise

China surprised markets with a thumping trade performance in January as import growth hit a six-month high, drawing some skepticism about the data but still allaying fears of a deepening economic malaise. Analysts who had expected the long Lunar New Year holiday to drag on January’s trade warned that the figures may be inflated by fake trade transactions, where traders forge deals to sneak cash into the country past capital controls. The value of China’s total exports climbed 10.6 percent in January from a year earlier, the Customs Administration said on Wednesday, more than five times market forecasts for a 2 percent rise. The value of imports also jumped 10 percent from a year ago as China bought record volumes of iron ore, crude oil and copper. That lifted import growth to its highest level since July, handily beating predictions for a 3 percent gain. The country’s trade surplus rose to $31.9 billion, well above forecasts of $23.7 billion and December’s $25.6 billion. A run of underwhelming economic data from China in recent weeks had steeled investors for another disappointment on Wednesday, as markets braced themselves for more signs that the world’s second-largest economy is losing momentum. Fears that China may be slipping into a sharper-than-expected slowdown were believed to have fed a fierce selloff in global financial markets in January, with emerging markets hit particularly hard. Asian investors welcomed the trade data and pushed stock prices higher for the fourth straight session. An optimistic economic outlook from new Federal Reserve Chair Janet Yellen also cheered markets. A resilient Chinese economy is good news for the world, particularly for major commodity exporters such as Australia. Economists expect China’s economy to grow at its slackest pace in 14 years this year at 7.4 percent.

 

Strong Chinese data helps growth-linked currencies, dollar steadies

For forex market, the growth-linked Australian and New Zealand dollars hit one-month highs as upbeat Chinese trade data eased concerns about growth in the world’s second biggest economy, bolstering demand for riskier assets. In Europe, sterling was steady as investors focused on the quarterly UK inflation report, with the Bank of England expected to tweak its guidance on interest rates and probably pledge to keep rates near the current record low of 0.5 percent for an extended period. The pound could weaken if investors pare expectations of near-term rate hikes, traders said. Against the dollar, it was at $1.6445 while the euro was flat at 82.91 pence. Moves among other major currencies were also limited, with the dollar holding steady against its basket at 80.602. The dollar index pulled away from two-week lows, with the core message from new Federal Reserve chief Janet Yellen being that it was committed for now to winding down its stimulus measures.  The Aussie dollar rose 0.2 percent to $0.9052. It touched a high of $0.9068, its strongest level since Jan. 13. The New Zealand dollar outperformed, rising 0.4 percent to $0.8355, having hit a one-month high of $0.8370. The U.S. dollar shed 0.15 percent to 102.455 yen but held above the previous day’s low near 102.08 yen. The euro was also down 0.2 percent at 139.70 yen. Against the dollar, the euro fell 0.1 percent to $1.3634 after reaching session’s lowest price at $1.3625.

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