Asian Gains Drive European Futures Higher

European markets are poised to open much higher on Monday, tracking gains made in Asia overnight which came despite some questionable economic data from the region.

China’s trade figures for January were very poor and once again pointed to a slowdown in global demand for Chinese goods. While China did record a larger than expected trade surplus, when this comes as a result of rapidly declining imports and exports, it’s not something to celebrate.

Of course there are a number of factors that we should consider when analysing this data, not least the reliability of trade numbers that we get from the country. There’s also the volatility in the numbers that comes at the start of the year due to the Lunar New Year. It’s also worth noting that retail sales during the holiday period grew 11.2% compared to last year so it’s not all doom and gloom. In an economy that’s attempting to transition away from exports and towards consumption, there are certainly positives to take from this.

Chinese stocks were among the few that were in the red on Monday, playing catch up following the week long holiday in which markets elsewhere took quite a beating. Japan’s Nikkei certainly hit the ground running this week, up more than 7% already as stocks pared their substantial losses in the first two weeks of the month, spurred on by a weakening of the yen.

The economy contracted 1.4% on an annualised basis in the fourth quarter, driven largely by a slump in domestic consumption. To make matters worse, the yen has appreciated sharply since the start of the year which could weigh on the economy further in the first quarter. The data gives the Bank of Japan even more reason to ease monetary policy further – despite questions growing about the tools available and their dwindling effectiveness – which would offset the strong gains in the yen and allow them to point the finger at domestic weakness rather than the currency itself, at a time when the currency wars debate drags on.

It’s bank holiday in the U.S. today which means it’s likely to be one of the quieter trading days this week, with liquidity probably declining sharply. Low liquidity markets can quite often be volatile though, especially at a time when investor sentiment is so fragile.

Economic Calendar

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam

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