Activity indicators in Q1 so far evidenced that public investment strengthened, partly offsetting weakness in the private sector.

Industrial production grew 5.4% YoY in Q1 so far, down from previous 5.9% gains.

Retail sales growth slowed to 10.2% YoY in Q1 so far, while Fixed asset investment increased 10.2% YoY in the same period.   

China’s exports in RMB terms dropped sharply by 20.6% YoY (-25.4% in USD) in February, from 6.6% drop in January (-11.2% in USD).

Imports in RMB terms dropped 8.0% YoY terms (-13.8% in USD) from 14.4% drop previously (-18.8% in USD).

As a result, trade surplus narrowed notably to RMB209.5bn (USD32.59bn) in February.    

The CPI  picked up to 2.3% YoY in February, from 1.8% in January, largely pumped up by the 5.8% YoY surge in food, tobacco and liquor.

The PPI fell 4.9% YoY in February, from 5.3% drop in the prior month.

Foreign exchange reserves fell USD28.57bn to USD3.2trn in February, the lowest level since December 2011, however, the decline was smaller than the monthly drop of USD99.5bn in January.

Although CNY gaining from last two months, the above mentioned narrow trade surplus and as a result of domestic consumption (import bills likely increase) which would likely cause upside traction in USDCNY during Q2, hence we like to remain long in mid month futures on hedging grounds.