- Digesting China Trade, RBA Monetary policy statement, French Industrial
Production; looking to Trump-Abe meeting, UK Trade, Production,
Construction & NIESR, US Import Prices and Michigan Sentiment
- China Trade: Underlying trend clearly improving as seen elsewhere in
Asia, but plenty of caveats relating to LNY timing, base effects and
higher commodity prices
- UK Production: further gain expected, but France & Germany falls imply
downside risks due to Christmas timing
- UK Trade: marginal deficit narrowing seen, but outlier risk very high
- US Import Prices: energy seen pacing headline gain, non-energy seen
flat to lower
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** EVENTS PREVIEW **
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If markets were minded to pay attention to the flow of incoming economic statistics, then today would potentially be a major day at the office, featuring as it does: the headline grabber for the day - Chinese Trade; Norwegian CPI, French, Italian and UK Industrial Production, with the UK also offering Construction Output, Trade and the NIESR's GDP estimate, while Canada has it monthly labour data, and the US sees Import Prices and provisional Michigan Sentiment. On the policy front, there were few surprises in the RBA's Statement on Monetary Policy, given that new governor Lowe had already signalled a shift of view on the AUD yesterday, when he effectively suggested a stronger AUD was fine if it was premised on solid growth outlook, which marks a shift from the seemingly endless hand wringing about AUD strength during the Stevens era. Last but not least on the policy front, Trump meets with Japanese PM Abe, with the focus on how much criticism there is of the level of the JPY and Japan's Current Account surplus, which stands at 4.0% of GDP. The IEA follows on from the EIA with its monthly Oil Market Report.
** China - Jan Trade Balance **
- While the Trade data reinforce the impression of a clear improvement in the underlying trend for exports and imports, predicated on a pick up in manufacturing sector demand globally and improving domestic demand, a trend which has been evident in trade data from Japan, South Korea and Taiwan amongst others in Asia, there are still a number of caveats that have to be applied. Firstly Jan 2016 was especially weak, coinciding as it did with the trough in global commodity prices, and nominal USD values for exports and imports were actually lower than those seen in January 2014 and January 2015. Secondly January/February trade data always have to be treated with great care given Lunar New Year effects, which in this case may have seen some front loading of exports and imports, and in all likelihood the February data will show a sharp slowing relative to this month's reading. Last but not least export and import values are clearly being boosted by the rise in energy and commodity prices, and indeed the fall in the CNY. Eminently none of this serves to alter concerns that Trump's rhetoric suggests considerable headwinds for Chinese exports to the US going forward.
** U.K. - Dec Industrial Production / Trade Balance **
- Forecasts for today's output data look to be predicated more on the provisional Q4 GDP estimates for Manufacturing and Construction, in which both sectors made effectively no contribution to GDP growth, rather than the upbeat tone of recent surveys (outside of Construction). Be that as it may the expected 0.5% m/m rise in Manufacturing Output would suggest solid momentum (as implied the latest CBI survey) going into Q1, in so far as that would follow the 1.3% m/m rebound in November from October's -1.0% m/m. The often erratic and frequently heavily revised Construction Output are expected to bounce 1.0% m/m after falls of -0.2% and -0.6% in preceding months. Perhaps the simplest observation on the accompanying December Trade Balance is that a large outlier relative to forecasts is probable, given the consensus sees a marginal narrowing from Novembers' £-12.16 Bln to £-11.45 Bln. However Dec 2015 saw the deficit narrow to £-7.97 Bln from November's £-9.58 Bln, Dec 2014 saw a colossal ballooning out to £-13.3 Bln from November's £-10.5 Bln, and December 2013 a sharp narrowing to £-9.0 Bln from November's £-12.3 Bln. A surprise appears to be "baked in the cake".
** U.S.A. - Jan Import Prices **
- Forecasters look for a further 0.3% m/m rise in Import Prices, paced largely by energy prices, with base effects also serving to drive the y/y rate up to 3.3% from 1.8%, the highest reading for nearly 5 years. Ex-Petroleum Import Prices are however expected to see a further marginal fall due to the strength of the USD. As previously noted, Import Price data are rather less sensitive than previously, in no small part due to greater domestic fossil fuel production. February's preliminary Michigan Sentiment is also due, with a small drop to 98.0 from January's final 98.5 expected, but still well above the 90-95 range that prevailed for much of 2016.
from Marc Ostwald