The risks of a hard landing in China have subsided as the strong economic data releases of January continue to support the country’s improving economic outlook. Exports, measured in US dollars jumped 16.7% year on year, from 3.1% in December and beat market calls for 10%, meanwhile imports remained robust at 7.9%, beating the market consensus once again. Inflation figures also surprised on the upside; PPI surged 6.9% to the highest level since March 2011 while CPI rose 2.5%, from 2.1% in December. ‘Seasonal factors’ could have contributed to the encouraging trade data; boosted by the timing of the week-long Lunar New Year beginning in January.
As Trump voiced his concerns over the apparent ‘bunch of bad hombres down’ in Mexico, the less sensational Fed voted unanimously to keep rates on hold and gave little indication of a hike at the next meeting in March. Comments included ‘some further strengthening’ in the labour market, increasing inflation, albeit still below the central bank’s target, and ‘soft’ business sentiment.
One thing you cannot say about Trump is, unlike many politicians globally, he has followed through with some of his main campaign promises, albeit some more recent actions are deemed controversial by many. We suspect the broadly dovish Fed members will act on a wait-and-see basis, as there has been little to no guidance from the Trump administration with respect to fiscal policy deployment and the consequent effects on US growth. The futures market is pricing in over a 70% chance of a hike in June.