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Can We Trust Chinese Data?

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Wednesday, February 12, 2014

Stocks made impressive gains on Tuesday following reassuring Fed commentary, though most of us didn’t see anything new in Janet Yellen’s first Congressional testimony as the Fed Chairwoman. Positive trade data out of China and weak-looking European numbers provide the backdrop for today’s market action. The debt ceiling issue appears to have been taken off the table following Tuesday’s House vote to raise it without preconditions.  

China’s January trade numbers came out surprisingly strong, running counter to recent PMI surveys that showed the country’s factory sector moving into contraction mode at the start of the year. The magnitude of the export strength -- up 10.6% from January 2013, which itself was up more than 20% -- has reignited questions about the country’s trade. Chinese exporters have long been suspected of resorting to over-invoicing as a away to counter the country’s tough capital controls and something along those lines could be at play in this strong report as well.

China is now the second largest economy in the world, but lingering questions about the quality of its economic data remain a key  hurdle in global markets getting a good read on the country’s outlook. The ongoing emerging market turmoil generally gets blamed on the Fed’s Taper plans, which incidentally Yellen doesn’t worry about much. But concerns about China’s growth outlook could be weighing on the region’s prospects.

Doubts about Chinese data aside, the data could be indicative of a favorable demand backdrop for Chinese goods, particularly out of Europe, giving the country a much-needed helping hand. With respect to Europe itself, we got an upgrade from the Bank of England for the British economy, though today’s December industrial production numbers for the region as a whole paint a picture of two steps forward one step back.

Not only did growth come short of expectations, but the prior month’s better looking growth numbers were revised down. The region’s economy was barely in the positive column in 2013 Q3 and Q2 and the preliminary Q4 GDP figures coming out on Friday are expected to be no better.

In corporate news, we got a string of positive earnings announcements this morning from Deere & Company (DE - Free Report) , Dr. Pepper Snapple (DPS - Free Report) and Owens Corning (OC - Free Report) , while Cisco (CSCO - Free Report) and Whole Foods are on deck for releases after the close.

Sheraz Mian
Director of Research

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