An improvement in Chinese trade data coupled with new 2016 highs for the price of oil are setting European markets up for a higher open on Wednesday.
Chinese exports jumped 18.7% y/y in March whilst imports stabilised, falling just -1.7%. The surge in exports adds to the improving outlook for China indicated by moderating producer price inflation and a rebound in business confidence data. The pickup in exports was likely supported by the devaluation of the yuan at the start of the year which made Chinese goods relatively cheaper than domestic options abroad. During March the Chinese currency was at its strongest its been versus the dollar all year, which could mean the export rebound doesn’t last long, although the yuan has fallen in value versus a basket of trade-weighted currencies.
The move higher in European shares comes after a lacklustre session on Tuesday as early optimism over the creation of an Italian bank bailout fund was offset by a gloomy IMF global growth forecast.
The stabilisation of China’s imports should be positive for FTSE-listed mining companies. The UK benchmark was buffeted on Tuesday by the IMF’s suggestion that a Brexit would be a ‘severe risk’. Full-year results from the UK’s number one grocer Tesco (LON:TSCO) will be a focus on Wednesday.
Brent and WTI crude oil closing at 2016 highs as WTI moved above its 200 day-moving average helped the Dow Jones close up triple digits, a feat it didn’t manage on Friday or Monday when similar gains gave way to finish near breakeven.
The US dollar came off its lows on Tuesday and has gained more ground overnight after an on-balance more hawkish tone from numerous Fed speakers. Dallas Fed president Kaplan was one of the more cautious saying he can wait until June whilst Philly Fed president Harker said its still possible to rise rates three times this year if data allows. Williams said the US economy is on track to raise two or three times as Lacker was hawkish on inflation, saying it gives a good reason to hike
Short-covering has helped a recovery in the British pound after a surprisingly big monthly improvement in annual inflation stats. The data would ordinarily increase odds of a more hawkish Bank of England at its rate decision on Thursday but that looks unlikely ahead of the June referendum.
The euro continues to flat-line versus the dollar, apparently pinned to 1.14 for the last eight days. Germany looks increasingly divided over the ECB’s quantitative easing policy after Jens Weidmann defended the policy following some the most critical comments yet from finance minister Wolfgang Schauble.
EUR/USD – The euro-dollar pair closed back below 1.14 on Tuesday as it continues to oscillate in a tight trading range. A breakout to the topside could target the 2016 peak near 1.17 whilst a break lower could find support at 1.1150.
GBP/USD – Sterling fell back from just shy of 1.4350 to close below 1.43. The long wick suggests some lost momentum but a move towards 1.14 still appears likely as the pair stays in its 1.40-1.45 trading range.
EUR/GBP – Euro-pound saw another swift move lower from the aforementioned confluence of long term resistance near 0.81. The Feb 24 and March 24 peaks at 0.7930 could offer some support on any further move lower.
USD/JPY – Dollar-yen has seen a weak rebound from 1.08 to see 1.085. Chances remain high for another sell-off towards 1.07 then 1.06.
Equity market calls
FTSE100: to open 33 points higher at 6,275
DAX: to open 73 points higher at 9,834
CAC40: to open 32 points higher at 4,377
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