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China’s exports expand for the first time in eight months - All eyes on ECB

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China’s exports expand for the first time in eight months

(by Arnaud Masset)

After a long period of uninterrupted contraction, Chinese exports printed in positive territory - the first time since March this year when it increased 11.5%y/y - rising a modest 1%y/y (versus -5% expected) in November, while the previous month’s reading was revised to the downside from -7.3% to -7.5%. In yuan terms, the measure climbed 5.9%, highlighting the effects of the strong depreciation of the renminbi in November (roughly 2% against the US dollar). Imports also surprised to the upside and surged 6.7%y/y in dollar terms (versus -1.9% median forecast), narrowing the trade surplus to $44.61.

This pickup in exports and imports proves that China’s dragon still has some fire in its belly, even after a complicated year, which has been challenging for exports oriented economies. It is therefore an encouraging sign as we head into 2017 and the Trump presidency. We think the outlook for Chinese exports looks positive for 2017 as the weak yuan will be a breath of fresh air to the economy and help the government to continue its normalisation process. However, in order for this ideal scenario to play out, we would need to see stable a US/China relationship as a decrease in US imports from China would significantly hurt the world’s second largest economy. So far, President-elect Trump has already softened on some of his campaign promises, we think there is still a chance that he will ease his strong stance against China, even though we believe he will not completely give up.

All eyes on ECB

(Yann Quelenn, market analyst)

Over the last few months, the ECB has been in a wait-and-see mode. Today, we will finally learn whether the asset purchase program will be extended beyond March 2017 and how the bonds scarcity issue will be addressed. For the time being, there are currently two main rules regarding the types of bonds that the European Central Bank may buy under its QE programme. The rates must not be below the depo-floor of -0.4% and the institution cannot own more than 33% of a country’s debt.

In our view, an extension of the program at the current pace of €80 billion looks extremely likely. However, there is another strong possibility that we will see a reduction in the pace of QE as the issue of scarcity may be a never-ending issue in the medium run which will become increasingly drastic as we approach 2018. We firmly believe that the ECB will do whatever it takes to paint everything in a dovish light.

Currency-wise, we believe that the upside risk on the single currency remains somewhat limited and we may see a further test of the area between 1.08 and 1.09 if the ECB prolongs its wait-and-see approach. Nevertheless, markets look optimistic regarding the US outlook for the end of this year and the EURUSD pair is clearly oriented downwards.”

Source: https://en.swissquote.com/fx/news
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