China trade balance falls short of estimates

The most significant release of today’s Asian trade was China’s trade data for December.

The headline number was quite deceiving as it showed a fairly significant miss. Market consensus was for a trade surplus of $32.15 billion and the figure came in at $25.64 billion, 20% below estimates. While the headline reading was weak, it was a high quality miss once dissected. Imports were up 8.3%, smashing expectations of 5% and showing the second highest nominal reading ever recorded. While exports missed estimates at +4.3% (versus +5% expected), the value of exports was the highest ever recorded.

The reaction in equities was initially negative but there has since been a mild pickup in sentiment. The Hang Seng is in positive territory while the Nikkei, Shanghai Composite and the ASX 200 are treading water. Perhaps the fact that the numbers out of China aren’t that bad suggests there is no need for officials to loosen policy which is deemed a negative by some investors. After a disappointing CPI reading yesterday, some would have been getting hopeful that officials would spring to action in coming months.

Jobs expected to beat

US futures have actually gained ground since the close of US trade, suggesting some traders might be closing shorts and exercising caution given the reaction we’ve seen in US equities to a strong payrolls reading in the recent past. All eyes will be on the non-farm payrolls reading later today which is due out at 0.30 AEDT. Current expectations are for 197,000 jobs to be added, with the unemployment rate flat at 7%. Goldman Sachs has upped its estimate to 200,000 and Deutsche Bank to 250,000.

A bumper jobs reading would probably push the USD higher against the majors. How equities respond is a different story though as markets seem to now be comfortable with the notion that tapering will happen in the near term. As long as economic data shows significant progress then equities are likely to continue rising. It is interesting to note the S&P has been up in the last eight payrolls release sessions.

Positive start for Europe

European markets will be looking to bounce at the open after having been sold off significantly in yesterday’s trade. The euro has been quite steady in Asia after having experienced some volatility on the back of the ECB. EUR/USD plunged to 1.3548 on Mario Draghi’s dovish tone, but has since recovered to around 1.36. The ECB kept policy unchanged and emphasised it will maintain an accommodative stance of monetary policy for as long as necessary. Draghi also stated that all instruments allowed are eligible and that they will act if money markets tighten. While this is all bearish for the euro, possibly traders would have wanted to hear more about what unconventional measures it is exploring to help ignite the economy before adding to shorts.

China figures a dampener for materials

The local market is a touch weaker despite regaining some ground on the back of the China trade balance data. Taking a closer look at Australia specific metrics, the picture doesn’t look great. China’s overall imports from Australia fell to 1.5% in December, down from 1.8% in November. Meanwhile iron ore imports also dropped to 73.38Mt in December, down from 77.84Mt in November.

This probably explains why the materials space just continues to languish today with the iron ore miners among the worst performers. Rio Tinto, Fortescue Metals and Atlas Iron are all facing falls of around 3%. The commodity price falls seen in overnight trade have also not helped the situation today. Meanwhile, the banks are steaming ahead with modest gains for three of the four majors.

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