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- Asian shares made their first real rally of the year on Wednesday after Chinese data trade data beat expectations, offering a rare shaft of light for the global economy. The gains came after China reported its exports had risen 2.3 percent in yuan-denominated terms in December, from a year earlier while imports dipped 4.0 percent. In U.S. dollar terms, China’s December exports exceeded analyst expectations, falling 1.4 pct from a year earlier, while imports fell by 7.6 percent. Analysts polled by Reuters had expected exports to fall 8.0 percent and imports to fall 11.5 percent. While investors harbor suspicions about the reliability of the data, on the surface they offered hope that world trade flows were at least stabilizing after a dismal 2015. It also suggested Beijing might prove successful in its increasingly forceful attempts to stabilize the yuan, so dampening fears of a sustained devaluation.
- Federal Reserve Bank of Richmond President Jeffrey Lacker said on Tuesday that the economies of the United States and China are linked less than recent volatility in U.S. equity markets seem to imply. “I think our real economies are linked less than you would think from the extent to which our equity markets seem to have moved in parallel with movements in their exchange rate and their equity markets,” Lacker said following remarks to a business group in Columbia, South Carolina. He added that the U.S. stock market’s heightened volatility last summer following China’s stock market woes and a devaluation in the yuan “in hindsight looks like an overreaction…the same thing is the case now.” Fed officials on the whole currently forecast four rate increases this year, but have made clear this is conditioned on incoming data and upward momentum in inflation toward the Fed’s two-percent target rate. The Fed raised rates by a quarter point in December from near zero, the first increase in nearly a decade.
- Crude futures rose on Wednesday for the first time in eight days, with U.S. oil pulling further away from the widely watched $30-per-barrel level breached the previous session, after U.S. crude stocks unexpectedly fell last week. The $30 mark is both a psychological and financial threshold and, in recent days, traders have poured money into $30 put options for expiration in February and March. U.S. crude stocks fell by 3.9 million barrels in the week to 480.071 million, compared with analysts’ expectations for a increase of 2.5 million barrels, data from industry group the American Petroleum Institute showed on Tuesday. Crude stocks at the Cushing, Oklahoma, delivery hub for WTI fell by 302,000 barrels, API said. But the bearish outlook for oil remains after the U.S. government forecast on Tuesday that the global glut will swell until late 2017. Increased Iranian oil output should feed into oversupply this year with the expected lifting of Western sanctions on that country’s exports, the U.S. Energy Information Administration said. The agency forecast that a limited decline in U.S. supplies next year and steady growth in global demand will help ease the glut only in the third quarter of 2017, the first decline after nearly four straight years of gains. Still, in a reminder that geopolitical tensions could intervene to support prices, Iran is holding 10 U.S. sailors after seizing two Navy boats that allegedly entered Iranian waters in the Gulf on Tuesday.
- The dollar held onto gains against the other major currencies in quiet trade on Tuesday, as ongoing concerns over volatility in China and declining oil prices continued to dominate sentiment. Investors also remained concerned over the extent of the economic slowdown in China, following a steep selloff in Chinese stocks and a renewed devaluation in the yuan since the start of the year. Sterling weakened after the U.K. Office for National Statistics said industrial production fell 0.7% in November from the previous month, compared with forecasts for a flat reading. It was the biggest drop since January 2013. Manufacturing production fell 0.4% compared with October, well below forecasts for a 0.1% increase. On a year-over-year basis, manufacturing production contracted by 1.2%, its fourth consecutive month of contraction. Economists had forecast a more modest decline of 0.8%. Sterling also remained under heavy selling pressure amid concerns that the Bank of England will signal that rates are likely to remain on hold for longer after its policy meeting on Thursday.