Research Team at Danske Bank, notes that financial markets have seen some relief over the past week and apart from rebounding from technically stretched levels, there has also been some supportive news. Key Quotes “Chinese central bank governor Zhou Xiaochuan broke a long period of silence when in a very comprehensive interview with Caixin magazine he reiterated the Chinese view that there is no basis for a persistent CNY depreciation. He also highlighted again that China is managing against a basket of currencies and not only the USD. Devaluation fears have eased somewhat in the market lately with the offshore CNH appreciating 2.5% against the USD, regaining some strength following the slight panic in early January. Central bank comments from the Fed and ECB have also soothed sentiment. ECB president Mario Draghi was very clear that the ECB stands ready to act in March. Also, one of the more hawkish Fed members James Bullard, who is voting this year, has changed his tone in a much more dovish direction, saying that inflation expectations have fallen ‘too far for comfort’ and that he ‘regards it as unwise to continue a normalisation strategy in an environment of declining market-based inflation expectations’. Focus now turns to the G20 meeting in Shanghai where central banks and finance ministers meet on 26-27 February. Economic data has lent some support to sentiment. Fears about a US recession eased after US retail sales last week surprised on the upside witnessing resilient consumers gaining support from low gasoline prices. In addition, initial jobless claims this week further reversed a rising trend that had given some cause for concern as a sharp rise in claims is often seen ahead of US recessions. Initial jobless claims stayed below 270,000 for the second week in a row after hitting 294,000 in mid-January. In China, credit data showed another burst of lending in January. In particular, the more policy-driven lending from bank loans and corporate bonds has been very strong (note that corporate bonds in China are mostly from state-owned companies). While this just increases the medium-term concern over high debt, wasteful credit and rising bad assets, we believe it is likely to feed through to higher activity, easing fears about a Chinese ‘collapse’ in the short term. A stabilisation of global metal prices and the price of iron ore is also signalling a stabilisation/moderate recovery in Chinese demand. Finally, a stabilisation in oil prices has contributed to somewhat calmer waters. Saudi Arabia, Russia, Venezuela and Qatar made an agreement to freeze production. The deal as such was not worth much, as these countries already produce close to their limits. However, that they are talking and even able to make an agreement may be seen as good news. However, it was not all positive news last week. The German ZEW index, which has historically served as a good leading indicator, fell sharply in January. Chinese trade data also suffered a setback. However, in our view, the latter should be disregarded, as the January and February data are very distorted in China due to the Chinese New Year. Hence, we need to see trade data for February before we come to a conclusion on Chinese trade.” For more information, read our latest forex news.