Many of the capital markets are enjoying reversals today. Equity markets are mostly higher. The MSCI Emerging Market equity index is up more than 1%. Several key commodities, like oil and copper, are firmer. Bond markets, outside the US are firmer, with the Japan’s 10-year yield slipping to new record lows slightly below 20 bp. The dollar is mixed, as the dollar-bloc currencies firm, as are most of the freely traded emerging market currencies, with the beleaguered South African rand leading the pack (~1.1%), with the Russian ruble a close second (~0.9%).  The European complex, including sterling, and the yen are heavier. 

The most important economic news that appears to have helped foster the “risk-on” activity was China’s trade figures. We suspect that with the sharp and persistent moves to start the year, the market was vulnerable to a counter-trend move and almost any spark may have been sufficient.  

China reported a considerably larger than expected trade surplus. How this was achieved depends on how the data is denominated. Specifically, China reports its trade figures in yuan and dollars.In yuan terms, the surplus jumped to CNY382.05 from CNY343.10. The consensus had expected a small decline. The record large trade surplus was recorded in October at CNY393.20 bln.   

The larger trade surplus in December was driven by stronger than expected exports. Exports, in yuan terms, rose 2.3%. The consensus was for a 4.1% decline after a 3.7% fall in November. It is the first year-over-year increase since June and only the second positive reading for all of last year.  Imports fell 4.0% year-over-year, which is about half of the pace the market expected. 

A somewhat different picture emerges if the figures are in US dollars. The trade surplus widened to $60.09 bln from $54.1 bln.It was the fifth largest for 2015.In dollar terms, exports did not rise but fell 1.4%, which was still considerably better than the Bloomberg consensus (-8%).Imports fell 7.6% in dollar terms.  This compares with an 8.7% fall in November and expectations for an 11% decline in December.