SCOREBOARD: China's iron will

As we found out yesterday, China’s economy appears to be powering ahead, with import growth up some 51 per cent year-on-year to January. Exports for their part were also much stronger than expected, rising by 37.7 per cent year-on-year and while the new year may be affecting things, these are still very positive results. Very positive for Australia too, as the price of iron ore hits records, ditto copper, with sugar and wheat not too far away. Global trade is booming. 
 
The only disappointing data last night came from a slight fall in December euro zone industrial production – 0.1 per cent – but this follows a strong 1.2 per cent gain in November and of course there were weather related disruptions. Not a lot to worry about. Actually, I should also mention the weaker Japanese GDP data yesterday. As the first negative quarter in over a year (not unexpected), it may seem alarming, but the fact that net exports detracted from growth – as did private consumption – suggests it is a temporary lull in activity rather than the beginnings of anything more dire. It does follow extraordinary growth in the previous four quarters, after all. In any case it’s a preliminary estimate and subsequent results can be revised substantially. That’s why it probably didn’t spook anyone – the Nikkei was up 1.1 per cent yesterday. 
 
More broadly though, equities don’t seem to be sharing in the joy provided by the Chinese economic data – in broad terms. European stocks were mixed, with the Dax up 0.3 per cent , ditto STXE600, while the FTSE was down 0.05 per cent. Not a lot of love in the US either I’m afraid, outside energy (+1.9 per cent ) and basic materials (+1.3 per cent ) of course, although there is still about two hours of trading to go. The S&P500 is currently 0.1 per cent higher (1330), the Dow is off 14 points (12259), while the Nasdaq is 0.2 per cent higher (2814) and the SPI flat (4919). As you’d expect, commodities are helping things along and got a decent boost after China’s trade data. Copper was up 2 per cent in New York, gold was up smalls to $1363 while crude was mixed. In New York West Texas intermediate was flat ($85.55) but in London, Brent traded 2.6 per cent higher to $103. 
 
Apart from that there wasn’t a lot of action. US Treasuries did little – trading so far within a 3-6 basis point range on the major notes, with the yield on the 2-year flat at 0.84 per cent, the 5-year is off 1 basis point to 2.35 per cent while the 10-year is down 2 basis points to 3.61 per cent. Aussie futures did nada – 2-3 tick range 3s at 94.74 and 1-0s at 94.27.  
 
In forex we really only saw decent moves on euro and sterling. Euro is being hit by impatience it seems, people wanting an immediate resolution to what are complex – very complex – issues facing the euro zone. As I write euro is off 56 pips to 1.3480, while sterling is down 40 pips to 1.6028. Otherwise the Australian dollar is down 15 pips to 1.0033 while yen is little changed at 83.29. 
 
Bits and pieces otherwise. The New York Fed President (Dudley) said that the US economy is heading in the right direction, but that that it “is not yet well”. He reckons growth needs to be a lot faster to bring about a meaningful recovery in the labour market. The ECB’s Nowotny suggested that the bank was not being soft on inflation, but would not respond to temporary price pressures – the huge risk of course being that they are not temporary. Finally, Obama reckons he’s going to reduce the budget deficit by $1.1trillion over 10 years, which begs the question – can we look forward to QE over the next 10 years?
 
A busy run of data today with the RBA’s minutes at 1130. Chinese inflation data is then due at 1300 and Japanese machine orders follow late afternoon. This evening, watch out for euro zone GDP, the German ZEW survey, US retail sales, the Empire state manufacturing survey and business inventories.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.