Unexpected increases in industrial production and investment in China in the first two months of the year have driven gains in European and US equity markets into positive territory. The dollar has fallen modestly as investors assess possible escalations in geopolitical tensions following Rex Tillerson's dismissal as US Secretary of State.
China's industrial production and fixed-asset investment exceeded economists' expectations in the first two months of this year, rising 7,2% and 7,9% respectively, thanks to a rebound in exports. Retail sales also remained strong in January and February, helping to soften the effects of the Lunar New Year holiday.
Tensions over a potential trade war continue; the firing of Secretary of State Rex Tillerson raised concerns about a new White House official who could take a harder line on trade, promoting President Donald Trump's tariff agenda. Trump nominated CIA Director Mike Pompeo, a former congressman who has endorsed "pushing back against the China threat," to replace Tillerson. The change comes as the administration is considering new tariffs on a wide range of Chinese imports, measures against more than $30 billion of goods annually. The measure would impose surcharges on more than 100 Chinese products, including electronics, telecommunications equipment, furniture, and toys. The tariffs could be implemented as early as next week.
In Europe, ECB President Mario Draghi commented that the recent appreciation of the euro is due more to external factors than to the economic growth of the countries that share the common currency and that it could weigh on inflation. He also noted that monetary policy adjustments will remain predictable, as policymakers look for further evidence that inflation is moving in the right direction.
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