China Charges Ahead, Yen Shorts Rise

The Chinese comeback continues with stronger-than-expected industrial production and tame inflation numbers.

NZD/CHF was the best performing trade last week as the old carry trade re-emerged, partly because Swiss banks began charging negative interest rates on deposits. The weekly CFTC data showed another increase in yen shorts while bets against the euro were cut in half.

The Chinese economy is showing more signs that it has turned the corner. November industrial production rose 10.1% y/y compared to 9.8% expected. Retail sales were also firm at 14.9% y/y compared to the 14.6% consensus. At the same time, CPI was fractionally lower than expected at 2.0%.

The resurgent Chinese economy may be a boost for the commodity currencies. The Canadian dollar is stronger to start the week after the government approved the Nexen and Progress Energy takeovers late on Friday.

The non-farm payrolls report on Friday was a positive sign for the North American recovery but risk trades are finding it difficult to gain traction with the uncertainty from the fiscal cliff.

The newest risk in the eurozone is a Berlusconi comeback. The disgraced former Prime Minister is mulling a return to politics even while facing a number of charges. A comeback could add an element of uncertainty to Italian politics and threaten Montis hard-fought austerity.

Commitments of Traders

The weekly speculative futures positioning data, as of the close on Tuesday:

JPY net shorts increased to 90K from 79K

EUR net shorts cut to 33K from 67K

GDP net long increased to 27K vs 10K

AUD net long increased to 92K from 77K

CAD net long cut to 57K from 62K

NZD net long 21K vs 19K prior

-AB