It was all looking like an orthodox drift higher in equity markets last night until the SPX rolled over in a late-session swoon, perhaps on rumours that the government would flog out its considerable holding in Citigroup? Regardless, Macro Man's Bloomberg inbox lit up with comments on the heavy futures selling driving the 7 point reversal.....perhaps this is a sign of the top?

Uh....OK. We'll disregard the fact that in the context of the past couple of years, a 70 bp move in the index within half an hour constitutes more of a "baby's hiccup" than a reversal. No, what made Macro Man laugh was the commentary on the "heavy futures selling." Perhaps there was a large order or two that went through....but even so, aggregate end-of-session volume was utterly unremarkable by the standards of the past couple of weeks- which themselves haven't exactly been a hotbed of activity. If you've found yourself musing that equity markets haven't been particularly interesting recently, perhaps this is an example of why.
China, on the other hand, has become very interesting indeed, and this morning saw the release of February's trade data. While the Feb balance was a bit better than expected, the margin ($7.61 bio versus the expected $7.15 bio) was as thin as a gnat's whisker. What is sure to grab (Chinese) policymaker attention is the fact that a) the surplus is a mere fraction of its 2008 highs, and b) that trend import growth now appears to be very comfortably outstripping trend export growth. It's not exactly a picture that screams out "Reval now!" to Voldemort and chums, is it?

Of course, the Chinese have been saying that "the FX rate won't affect the trade balance" for so long now that Europe and the US could justifiably throw the argument back in their faces at the current juncture. Certainly one region where abject currency weakness a competitive exchange rate has yet to pay many noticeable trade dividends is the UK.

Yesterday saw the release of January trade data...and they were pretty brutal. The goods balance fell to nearly £8 billion, its worst since July of 2008....not exactly what you'd expect with the pound languishing in the gutter, is it? You can't even really argue that it's a J-curve effect, as import growth has been matched almost perfectly by export growth. Maybe it really is as simple as the classic water-cooler lament that "the UK just doesn't make anything that anyone wants to buy."
Now, the overall picture isn't quite as bad, given Britain's tasty services surplus. (Though if Comrade Adair Turner has his way, who knows how long that will persist?) Regardless...it's not a particularly comforting sign for sterling, as it raises the question of just how far the pound will have to fall before it starts supporting the trade balance. In his current mindset, Merv might just want to find out. All aboard the "sterling lower" train then.....at least until, the conductor starts to Swerve.

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