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Chinese trade data returns a surprise deficit
00:00, 10 April 2013
Europe’s markets look set to open mixed this morning after the latest Chinese trade data posted a surprise $880m deficit in March largely as a result of a surprise jump in imports. The jump in imports by 14% was well above the 6% expected but this could well have been as a result of a flattening out effect due to the Chinese New Year after February’s sharp 15% drop. Exports also came in slightly lower than expected largely as a result of a slow down in goods to the EU, though trade with the US did show evidence of a pick-up. Europe’s problems continue to mount with little Slovenia the next in line for a possible European bailout after the OECD yesterday suggested that the country’s banking sector would need restructuring, due to high levels of impaired loans to the tune of €7bn or 20% of GDP. Given that the country doesn’t have to money to do so itself someone is going to take a hit and after the Cyprus solution depositors who still have money in the banks are likely to be sitting rather uncomfortably. With the final €10bn bailout solution in Cyprus still set to be approved by member parliaments and the country set to run out of money by the end of April, with final depositor losses still set to be decided, the last thing EU leaders need is another banking crisis in a member state. All the while economic data continues to disappoint after the latest German trade data showed a slump in both imports and exports in February, suggesting that the economic malaise in Europe is starting to gum up the gears of the engine room of the European economy. This doesn’t bode well for future growth prospects; despite US Treasury Secretary Jack Lew’s plea that consumer demand from surplus countries should help drive growth in the euro area. It would appear that the sharp drop in imports suggest that German consumers are starting to become increasingly concerned about prospects in Europe and recent retail sales numbers suggest that they are a pretty frugal bunch in any case. Today’s economic data releases aren’t expected to be positive either, with Spanish, Italian and French industrial output for February all expected to point to weak industrial activity in Europe’s second, third and fourth largest economies. In the US we also have the latest minutes from the 19th/20th March FOMC meeting which are likely to come under closer scrutiny than normal after Friday’s rather disappointing US payrolls report. It remains debateable though as to how much colour these minutes will add given that they came against a backdrop of successive positive employment reports and well before last Friday’s numbers. Talk of tapering asset purchases may well have been discussed but after last weeks jobs report the prospect of these sorts of measures aren’t likely to be imminent given Bernanke’s comments at his March press conference, when he stated that it would take a sustained improvement of a range of indicators, before the Fed would even consider adjusting the pace of asset purchases. His comments this week also suggest that the committee are in no rush to consider stepping back from current levels of accommodation. Friday’s payrolls numbers reinforced that message, and though the numbers weren’t awful they were still the lowest in nine months. There was no comfort from a fall in the unemployment rate to 7.6% given that the labour participation rate dropped as well. EURUSD – the euro looks to be closing in on the resistances at the 50 and 100 day MA’s at 1.3140, while the February highs at 1.3160 remain the main obstacle to a move towards 1.3235 which is a 50% retracement of the 1.3710/1.2755 down move. Only a move back below 1.3000 retargets the 200 day MA at 1.2875. Last weeks bullish engulfing candle suggests we could well be building up for a squeeze higher. GBPUSD – the bullish engulfing week seen a few weeks ago keeps the outlook positive and the push beyond the 1.5230 level now targets a potential move towards the 1.5420 level and 38.2% retracement of the 1.6370/1.4835 down move. Only a move below last weeks low at 1.5035 negates this view and targets 1.4920. EURGBP – while above the 200 week MA at 0.8520 the main resistance remains into the March gap between 0.8580 and 0.8605. A move below 0.8410 targets 0.8280 which is 50% retracement of the 0.7755/0.8815 up move. USDJPY – yesterday’s pullback from the 99.75 50% retracement of the 124.15/75.30 down move level could well see a drop back towards the March highs at 96.70. Only a break through 100 would then target 105.50 the 61.8% retracement of the same move. Trying to pick a dip will be the challenge here after last week’s surge higher. We could fall all the way back towards 94.40 which were the February highs and acted as support for the beginning of March.