Economic data for the eurozone was mixed and does not appear to the be impetus for the price action.  French industrial output was stronger than expected in January, rising 0.4% instead of falling by 0.3% as the consensus expected. However, this was marred by the 0.1% decline in manufacturing output, which was expected to have risen by as much. It was the third monthly decline over the past four months.  A bright spot is the auto sector, where output tuned positive in December (0.6%) and accelerated in January (1.4%).

It is difficult to find the bright spot in Italy's industrial production report. It fell 0.7% in January. That is its largest decline since last September. The market had anticipated a 0.2% increase. On a workday adjusted basis, industrial production fell 2.2% from a year ago, which also undermines an improving trend seen in Q4. 

The most interesting news comes from China today. First, it reported February inflation figures. Consumer price to 1.4% year-over-year, increasing from January's 0.8% increase and besting expectations for a 1.0% rise.  On a month-over-month basis, China's CPI rose 1.2% after a 0.3% increase in January.  Food prices jumped 2.4% from 1.1% while non-food prices firmed to 0.9% from 0.6%.  To be clear, this does not appear to be the start of a new inflation cycle in China. We suspect some distortions were caused by the Lunar New Year-calendar effect.

Deflation deepened for producer prices. The 4.8% decline on a year-over-year basis is the sharpest decline in nearly six years.  Producer prices have not increased in three years. Part of the recent decline can be attributed to the fall in commodity prices, which in part also reflect a slowing of the Chinese economy. The economy continues to suffer from excess capacity.

Separately, Chinese Finance Ministry officials have signaled a three-fold increase in the amount of bonds local governments can issue to CNY1.5 trillion (~$240 bln). Only a small part of this will be allowed to finance new spending. The bulk will be used to roll-over existing debt from off-balance sheet vehicles to their balance sheets and at lower interest rates. Officials project interest rate savings of around CNY40-50 bln. In effect, local governments will be allows to convert high yielding bonds into province-backed municipal notes.

The economic calendar for North America is light. The main features are wholesale inventories and the JOLTS report on the labor market. The Treasury auctions 3-year notes. 


Marc Chandler​
Global head of currency strategy at BBH
​Marc to Market