Please attribute the following commentary to Craig Erlam, Senior Market Analyst with OANDA in Europe:
European markets are poised to open much higher on Monday, tracking gains made in Asia overnight which came despite some questionable economic data from the region.
China’s trade figures for January were very poor and once again pointed to a slowdown in global demand for Chinese goods. While China did record a larger than expected trade surplus, when this comes as a result of rapidly declining imports and exports, it’s not something to celebrate.
Of course there are a number of factors that we should consider when analysing this data, not least the reliability of trade numbers that we get from the country. There’s also the volatility in the numbers that comes at the start of the year due to the Lunar New Year. It’s also worth noting that retail sales during the holiday period grew 11.2% compared to last year so it’s not all doom and gloom. In an economy that’s attempting to transition away from exports and towards consumption, there are certainly positives to take from this.
Chinese stocks were among the few that were in the red on Monday, playing catch up following the week long holiday in which markets elsewhere took quite a beating. Japan’s Nikkei certainly hit the ground running this week, up more than 7% already as stocks pared their substantial losses in the first two weeks of the month, spurred on by a weakening of the yen.
The economy contracted 1.4% on an annualised basis in the fourth quarter, driven largely by a slump in domestic consumption. To make matters worse, the yen has appreciated sharply since the start of the year which could weigh on the economy further in the first quarter. The data gives the Bank of Japan even more reason to ease monetary policy further – despite questions growing about the tools available and their dwindling effectiveness – which would offset the strong gains in the yen and allow them to point the finger at domestic weakness rather than the currency itself, at a time when the currency wars debate drags on.
It’s bank holiday in the US today which means it’s likely to be one of the quieter trading days this week, with liquidity probably declining sharply. Low liquidity markets can quite often be volatile though, especially at a time when investor sentiment is so fragile.
For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/
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