The Best And Worst Performing Assets In May

If April was supposed to be the best month of the year only to leave everyone scarred, bruised and battered, another confirmation that in the Fed's New Normal all the folksy old aphorisms no longer work came with the last trading day in May when we learned that the old adage of "sell in May and go away" has not yet paid off with broad gains for most asset classes in the past month. Equities, Rates, Credit and EM were all generally stronger. Commodities delivered the key underperformance largely led by a sell-off in softs and precious metals.

And while the best performer in May was by far the Russian stock market (which may have crushed Jay Carney's hopes for a macro hedge fund career in his post-White House life), the highlight has certainly been the global rally in DM rates. Indeed the global rally saw nearly all (except for Denmark, Iceland and Greece) the 10-year yields of developed government bond markets finish the month lower.

Other observations on the past month's performance from Deutsche:

The strong performance in US rates has definitely provided a boost to EM and spread products across the world. This has trumped good or bad data/fundamentals as the driver of assets in the last few weeks. Having said that, a strong election outcome in India and some emergence of stability in the Russia/Ukraine stand-off were also helpful for EM sentiment. EM bonds were up nearly 2.5% in May bringing their YTD gains to 5%.

Away from EM fixed income, DM spread products also did well with positive total returns seen across IG and HY indices on both sides of the Atlantic. Given the performance in rates, IG has generally outperformed HY but much of this is due to the longer duration of IG indices. It’s worth noting that European and US IG/HY credit benchmarks have yet to have a negative month so far this year.

Turning to equities, the MSCI EM equity index added 3.5% in May. The ongoing market chatter around Chinese stimulus has also helped sentiment in the Hang Seng (+5.4%), which posted its best gains in 8 months. Staying in the region, Japan’s Nikkei (+2.3% in May) also enjoyed its best month this year although the index is still down 9.4% YTD. Away from Asian equities, the S&P 500, the DAX, and the Stoxx600 all recorded their best performance since February although overall European markets (especially the peripherals) are still outperforming their American counterparts so far this year.

Soft commodities were the worst performers in May largely driven by an improving supply outlook for grains. Wheat (-12%) posted its worst monthly drop since 2011 as better rainfall across the Great Plains in the US has apparently improved crop conditions. Away from softs, WTI Oil (+3.0%) and Copper (+3.1%) have been doing better though with the latter posting its best monthly performance this year on talks of Chinese stimulus. Let’s see if we see further momentum on the back of the better-than-expected Chinese manufacturing PMI print that was released over the weekend!

Looking at returns YTD:

YTD gains (including dividends) for the Stoxx600 and the S&P 500 are 7% and 5% respectively. These performances are being overshadowed by gains in Portugal, Ireland, Italy and Spain which are up by +13%, +9%, +16% and +11%, respectively this year.  Overall it has been a pretty good ride for Fixed Income so far this year, across both rates and credit, with total returns in DM credit ranging between as low as 3.3% (USD Fin Senior) to as high as +7.9% (Spanish bonds).

And visually:

Dollar Going to Collapse 80% or 90%, Gold Can Touch $ 7000 To $ 9000 - James Rickards

   You Can Buy This Book @ Rs 509 By Clicking On The Picture.

More about James Rickards Click HERE

Barclays changes view on Indian Rupee after election

Barclays calls the Indian rupee one of its favorite high-yielding emerging-market currencies. The bank now sees the Indian currency at 58 rupees to the dollar in one and three months, compared to 60 previously. 

Barclays said that its more constructive rupee view reflects a combination of supportive factors including, an election result has encouraged portfolio inflows, a narrowing current account deficit and a globally supportive environment for carry trades. 

“Central-bank intervention will likely continue to limit the pace of INR appreciation against the USD, but the large size of portfolio flows implies that modest appreciation is likely to be tolerated by the RBI (Reserve Bank of India), in our view,” said Barclays. 

Barclays continues to think that a renewed bout of INR depreciation is unlikely, given the much-improved fundamental backdrop, led by a markedly smaller current account deficit, higher FX reserves, largely range-bound inflation and enhanced RBI policy credibility.

Rupee was as muscular as 69.22 rupees back in August, and the weak Indian currency at the time was one of the factors – along with gold-import restrictions-- blamed for reduced gold buying in the country, since a weak rupee makes gold more expensive for Indians.

Euro Dollar Trading Has Barely Changed In Five Years.

For all the headlines and hand-wringing since 2009 about the viability of the euro, its exchange rate versus the dollar has barely changed in five years.

While we admit the observation may seem superficial (the euro rose to $1.51 in 2009 and fell to $1.19 in 2010), we make mention in order to highlight the distinction between holding euros over time versus trading euros short-term across time zones, where the Citigroup currency team has identified an uncanny trading pattern.

To understand the opportunity, first recognize how dealers trade currencies. There are three "spot" markets for trading euros over the course of a 24-hour day. New York constitutes the primary market from 8am to 5pm ET, followed by Tokyo 5pm to 1am ET and then London 1am ET until New York resumes the following day at 8am.

Citigroup Head of G10 FX Strategy Richard Cochinos analyzed the intra-session price action of the euro for the three spot markets and found a very clear pattern since 2009. Whereas London tended to trade lower, New York tended to trade higher. Asia was roughly flat. Over time, this pattern created some significant distortions.

Reliable patterns are hard to come by, and this one strikes us as particularly valuable. As Mr. Cochinos wrote to clients: "Day trading behavior is tending to skew prices in a meaningful manner. Supporting evidence for this type of quick reversal has also shown up in our cash order flow."

As for those of us wondering how to profit, he elaborates:

International money flows are complex. This relationship is not: Buy euro dips early in the London session, sell them in New York late afternoon.

 Bloomberg annotates in charts so simple a 5th grader can get it

USD/JPY forecast for Monday

During Friday’s trading session USD/JPY traded within the range of 101.36-101.67 and closed at 101.52, losing 0.05% on a daily basis and 0.33% for the week.

Fundamental view

Japanese Machine Orders probably increased 4.2% in March on annual basis and 6.0% on a monthly basis, according to the median estimate by experts. In February compared to January orders declined 8.8%, while in February this year compared to February 2013 there was an increase by 10.8%. The indicator gauges the total value of machinery orders, placed at major manufacturers in the country. It is regarded as a leading indicator of business capital spending. An increase indicates that business confidence in Japan probably improved, while a decrease reflects a weaker confidence. In case Machine Orders increased more than projected, this would have a bullish effect on the yen. Japan’s Cabinet Office is to release the official data at 23:50 GMT on May 18th.

In case USD/JPY manages to breach the first resistance level at 101.68, it will probably continue up to test 101.83. In case the second key resistance is broken, the pair will probably attempt to advance to 101.98.

If USD/JPY manages to breach the first key support at 101.35, it will probably continue to slide and test 101.21. With this second key support broken, the movement to the downside will probably continue to 101.05.

World Currency Symbols

Russia Holds "De-Dollarization Meeting": China, Iran Willing To Drop USD From Bilateral Trade

That Russia has been pushing for trade arrangements that minimize the participation (and influence) of the US dollar ever since the onset of the Ukraine crisis (and before) is no secret: this has been covered extensively on these pages before (see Gazprom Prepares "Symbolic" Bond Issue In Chinese Yuan;Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China; Russia And China About To Sign "Holy Grail" Gas Deal; 40 Central Banks Are Betting This Will Be The Next Reserve Currency; From the Petrodollar to the Gas-o-yuan and so on).

But until now much of this was in the realm of hearsay and general wishful thinking. After all, surely it is "ridiculous" that a country can seriously contemplate to exist outside the ideological and religious confines of the Petrodollar... because if one can do it, all can do it, and next thing you know the US has hyperinflation, social collapse, civil war and all those other features prominently featured in other socialist banana republics like Venezuela which alas do not have a global reserve currency to kick around.

Or so the Keynesian economists, aka tenured priests of said Petrodollar religion, would demand that the world believe.

However, as much as it may trouble the statists to read, Russia is actively pushing on with plans to put the US dollar in the rearview mirror and replace it with a dollar-free system. Or, as it is called in Russia, a "de-dollarized" world.

Voice of Russia reports citing Russian press sources that the country's Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is "ready to handle the increased number of ruble-denominated transactions".

According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.

Well, if the west wanted Russia's response to ever escalating sanctions against the country, it is about to get it.

The "de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar. A subsequent meeting was chaired by Deputy Finance Minister Alexey Moiseev who later told the Rossia 24 channel that "the amount of ruble-denominated contracts will be increased”, adding that none of the polled experts and bank representatives found any problems with the government's plan to increase the share of ruble payments.

Further, if you thought that only Obama can reign supreme by executive order alone, you were wrong - the Russians can do it just as effectively. Enter the "currency switch executive order":

It is interesting that in his interview, Moiseev mentioned a legal mechanism that can be described as "currency switch executive order”, telling that the government has the legal power to force Russian companies to trade a percentage of certain goods in rubles. Referring to the case when this level may be set to 100%, the Russian official said that "it's an extreme option and it is hard for me to tell right now how the government will use these powers".

Well, as long as the options exists.

But more importantly, none of what Russia is contemplating would have any practical chance of implementation if it weren't for other nations who would engage in USD-free bilateral trade relations. Such countries, however, do exist and it should come as a surprise to nobody that the two which have already stepped up are none other than China and Iran.

Of course, the success of Moscow's campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars.

In other words, in one week's time look for not only the announcement of the Russia-China "holy grail" gas agreement described previously here, but its financial terms, which now appears virtually certain will be settled exclusively in RUB and CNY. Not USD.

And as we have explained repeatedly in the past, the further the west antagonizes Russia, and the more economic sanctions it lobs at it, the more Russia will be forced away from a USD-denominated trading system and into one which faces China and India. Which is why next week's announcement, as groundbreaking as it most certainly will be, is just the beginning.

Indian Rupee (USD-INR) May 2014

Should Not Close Below 59.95 .

Else Next Target 59.11. Three Consecutive Closes Could Take Currency Further Down To 57.80. 

Bullish US $ index view at risk. 79.26 is KEY, Watch the Russell 2000 and its 200d avg & Don't Fade The Bond Rally, BofA Warns

Bullish US $ index view at risk. 79.26 is KEY

The breakdown in US 10yr yields threatens our bullish US $ Index outlook, as well as our long $/Chf position and topping view in €/$. However, for now we are sticking to our call. A US $ Index break of 79.26 (the Mar-13 low) says our view is misplaced and opens significant US $ index downside.

Watch the Russell 2000 and its 200d avg

We are becoming increasingly concerned about small cap and tech stocks. Indeed, the Russell 2000 is dangerously close to its 200d (1113). A closing break below would expose 5yr trendline support (1057) and could lead to a bout of n/term risk aversion. This is bullish Treasuries.

10yr USTs threaten the US $

US 10yr Treasury yields take center stage next week. After 3 months of range trading, they have resumed their year-to-date downtrend. The Friday Bearish Outside Bar (a bearish chart pattern indicating further downside) and closing break of the 2.591% range lows says lower 10yr yields are coming. We target the 2.420%/2.399% multi-year pivot zone and potentially below. DON’T FADE THIS BREAKDOWN. Watch US equities.

While the S&P500 is still constructive, small caps and tech remain vulnerable. Indeed, the Russell 2000 is dangerously close to its 200d moving average, a close below which could lead to a bout of risk aversion and be the catalyst for further yield weakness. From an FX perspective, the 10yr yield breakdown threatens our bullish US $ index / bullish $/CHF. HOWEVER, FOR NOW WE ARE STICKING TO OUR GUNS. A break below 79.26 (US $ Index), 0.8699 ($/CHF) and above 1.3967 (€/$) forces us to reassess. In contrast, the yield breakdown increases our n/term bearish conviction on $/¥.

Chart of the week: 10yr Treasuries return to trend

The Friday Bearish Outside Bar and close below the 3m range lows say that 10yr yields have returned to a downward trending environment. In the sessions weeks ahead we target the 2.420%/2.399% pivot zone and potentially below.

$/¥ takes aim at its 200d avg and below

In contrast to our bullish US $ Index view, we remain near term $/¥ bears. Indeed the breakdown in 10yr yields adds to this bearish conviction. In the sessions ahead we look for a test and break of the pivotal 200d (now 101.00), targeting the 99.37 swing target.

Altyn means Gold, Eurasian Economic Union And Formation Of Joint Currency

Several Russian media outlets have reported that Russia, Kazakhstan and Belarus, that currently form the Eurasian customs union, will sign an agreement in May to accelerate the formation of an economic union and a joint currency: Altyn.

On the territory of several Russian principalities the currency Altyn has been circulating from the 15th century until 1991. Originally it was made of copper, the silver Altyn appeared during the times of Peter the Great.

I added English subtitles to the video below, press the ‘captions button’ to activate.

Transcript of the video:

ALTYN BECOMES THE NEW CURRENCY FOR CUSTOMS UNION

NEW EURASIA CURRENCY MAY APPEAR IN THE NEXT FIVE YEARS

A new currency for the Eurasian Economic Union, “Altyn” may enter into circulation within the next five years. In May, the Presidents of Russia, Kazakhstan and Belarus will sign an agreement on the establishment by 2015 of the Eurasian Economic Union. This unique partnership and single economic space will be a response to the European Union. It is not excluded [It is possible] that this may eventually develop into a military- political alliance which is able to compete with NATO and China. The original idea for creation of a single currency belonged to President of Kazakhstan Nursultan Nazarbayev. In 2012, it was supported by Russia’s President Vladimir Putin. It was originally planned to create a currency in 2025, but the introduction of serious economic sanctions against Russia may begin to accelerate plans for this new currency market.

Other media outlets that reported this news were Pravda.ru and Moskovsky Komsomolets. From these leads I did some searching on official sources on the development of the Eurasian Economic Union (EEU) and Altyn. What I found was that the EEU is in an advanced stage, on Altyn I couldn’t find much so I’m not convinced this currency will be introduced within 5 years. Presumably only an “oral agreement” between the states has been made on the joint currency.  

From Wikipedia:

The Eurasian Customs Union was launched as a first step towards forming a broader European Union-type economic alliance of former Soviet states. The member states are planning to continue with economic integration and were set to remove all customs borders between each other after July 2011. On 19 November 2011, the member states put together a joint commission on fostering closer economic ties, planning to create a Eurasian Union by 2015. Since 1 January 2012, the three states are a Single Economic Space (SES) to promote further economic integration. The Eurasian Economic Commission (EEC) is the regulatory agency for the Customs Union.

United States foreign policy opposes the Customs Union, claiming it as an attempt to “re-establish a Russian-dominated USSR-type union amongst the Post-Soviet states”

Documents from the Eurasian Economic Committee confirm the formation of the Eurasian Economic Union. Kyrgyzstan, Armenia and Tajikistan may join the new financial and economic organisation. Currently the three member states are at stage III of their integration process, they aim to reach stage IVby the end of 2015. Especially Putin is keen on closing a deal to move away from the petrodollar in conjunction with allies in central Asia.

Development Stages Eurasian Economic Union

As was being said in the video above the President of Kazakhstan Nursultan Nazarbayev was the first to come out with the idea to form a joint currency. According to Pravda.ru Nazarbayev is of the opinion the US dollar is an illegal and non-competitive means of payment “the world currency was not de jure legitimate because it was never adopted by any communities or organizations. There is no such international law,… the world currency market is not a civilized market, as the system of world currency issuance is not being controlled.” He said. Nazarbayev believes the world is heading towards a new monetary system; from “defective capitalism” to “the new capitalism that would be based on a non-defective currency – self-growing global wealth.”

Fun Facts About The Eurasian Economic Union

Russia’s economy is eight times smaller than that of the US, but by forming a new ‘empire’ on top of a vast amounts of resources this economic block will be a serious threat for the US petrodollar. Russia is now speaking openly about getting rid of the US dollar for trading energy, it’s building its own payment system and closing gas export deals with China - the other Asian empire. The Eurasian Economic Union will be a powerful stab at the US dollar hegemony.

By the way, in Kazakhstan “Altyn” means … gold.

Article : In Gold We Trust

What Hedge Funds Are Buying And Selling

Large speculators reduced ther S&P 500 positioning to net short this week and their NASDAQ longs to a one-year low as BofAML reports on CFTC data. Macros funds decreased their long exposure to S&P500 and NASDAQ to now hold short exposure. They also decreased their long exposure to US Dollar (raising their AUD longs to a record high) and maintained their long exposure to 10-year Treasuries. They decreased their long exposure to commodities and increased their long exposure to EM. Across all asset classes, positioning is at extremes.

Significant HF moves across asset classes, based on CFTC data

Equities. Large specs decreased S&P 500 to net short and reduced NASDAQ longs. They also increased Russell 2000 shorts last week

Agriculture. Large specs increased their long positioning in Soybean futures but decreased longs in Corn and Wheat futures

Metals. Large specs decrease Gold and Silver longs and increased Copper shorts. They maintained Platinum and Palladium longs.

Energy. Large specs increased their Crude longs and Gasoline longs. They also increased Natural Gas shorts but Heating Oil shorts.

FX. Large specs increased their EUR, AUD and GBP longs. They decreased their JPY shorts and MXN longs position.

Interest Rates. Large specs increased their short positions in 10-year while increasing their long position in 30-yr. They also reduced 2-year shorts

One can't help but see this positioning and wonder just who the big boys are selling to - as we noted here,

Based on Bloomberg's Smart Money Flow indicator, there is a very significant amount of distribution going on... the question is just who is soaking up the smart money selling? Company buybacks, Johnny 5, or a greater-fool retail investor?

Perhaps this chart from Lance Roberts at STA Wealth provides some color for who?

However, the idea that individual investors are still "out of the market" should be taken with a bit of caution. The chart below is data compiled by the American Association of Individual Investors (AAII) which surveys it membership on portfolio allocation.  The data is compiled and released monthly. 

With cash hovering at the lowest levels since the "Tech Wreck," and equity exposure at the highest,investors are more than just "warming up" to equities. They are effectively "all in" with respect to the financial markets.

Sliding Chinese currency takes blame for gold price weakness

The price of gold ended the holiday-shortened week below the psychologically and technically important $1,300 level, losing almost 2% since Monday.

The sell-off was blamed on an easing of tensions between Russia and the West over Ukraine after marathon diplomatic talks on Thursday.

The gold price was also hurt by renewed profit-taking ahead of the Good Friday long weekend when many markets in the West are closed for trading.

Investors continued to pull money out of the SPDR Gold Trust (NYSEARCA:GLD), the world's largest physically-backed gold ETF accounting for some 40% of total holdings in the industry.

A new report suggests there may be other reasons for the recent weakness in the yellow metal: The slide in the value of the Chinese currency, the yuan, to levels against the US dollar last seen in February.

Copper being used in China as collateral for loans and to bypass the country's capital control regulations has long been a staple of the industry.

With the tight credit conditions inside the country, the practice has spread to iron ore and gold. Some estimates put the the portion of copper stockpiles used in finance deals as high as 80%, while 40% of iron ore inventories could be tied up for trade credit.

This week a report by the World Gold Council said Chinese firms could have locked up as much as 1,000 tonnes of gold in financing deals.

DailyFX explains the dynamic of how this could push down the gold price:

Gold has been used for some even more complex and lucrative structures surrounding the skirting of capital controls

"The highest USD/CNY fixing rates in months may have forced the unwinding of some extremely overleveraged positions. Although the systems of financing are often complex as we saw with copper, gold has been used for some even more complex and lucrative structures surrounding the skirting of capital controls.

"In regards to the depreciating Yuan, political pressure continues to build with Treasury officials warning the Chinese not to weaken the Yuan for their economic benefit. Meanwhile, the daily reference rates out of the PBoC continue to move higher toward the ominous 6.25 mark. That is said to be the level where a large concentration of leveraged financial vehicles may experience some serious stresses."

Another indication that there may be lots of gold on offer in China is the disappearance of premiums paid on the Shanghai Gold Exchange.

From premiums that topped out at $37 when gold was trading around $1,200 last year, traders are now offering gold at a discount or a couple of dollars above to the quoted London spot price.

Driven in part by a weakening yuan discounts on gold in China widened to as much as $9 an ounce below when the price were headed towards $1,400 in March.

Rupee shackled in a range

The Indian rupee has been stuck in a sideways range between 59.6 and 60.4 for more than two weeks. As the general elections kicked off last week, the currency weakened from its high of 59.78 on Monday to 60.34 on Friday before closing at 60.17, down 0.15 per cent for the week.

Weak macro-economic data releases in the past week could keep the rupee under pressure. The trade deficit for March hit a five-month high of $10.5 billion and exports declined 3.15 per cent year-on-year.

However, gold import curbs have narrowed the deficit for this fiscal to $138.59 billion from $190.33 billion. In addition, the index of industrial production for February fell 1.9 per cent after a 0.8 per cent rise in January.

Following these weak data releases, the market would be keenly watching the inflation data due for release in this truncated week, which has just three trading days.

Both consumer price and wholesale price inflation data are due for release on Tuesday. There is some mild good news for currency traders. SEBI has reduced the margin requirement for dollar-rupee contracts with effect from April 15. The margins were raised in July last year. Trading volumes are expected to pick up following the lower margin requirements. Though foreign institutional investors continue to buy Indian equities, the outflows from debt limit the rupee’s strength. FIIs bought $409 million in equity while selling $386 million of debt last week.

Dollar index

The dollar index tumbled 1.2 per cent last week as the euro and yen strengthened sharply. The index has crucial support at 79, which if broken could turn the outlook bearish for a fall to 77. On the other hand, a reversal from 79 would keep the 79-81.5 sideways range intact. The rupee is likely to hover in a range between 59.6 and 60.4 in the shortterm. The 21-day moving average at 60.43 is a key short-term support.

Dollar-rupee outlook

The rupee could weaken to test this level while it remains below 60. A decline below 60.43 could drag the currency lower to 60.7 in the short-term. However, 60.7 is a strong support that can limit the short-term weakness. A close above 60 is needed for the short-term bias to turn positive and test 59.6 again. A breach of 59.6 would see the rupee strengthen to 59.45 and 59.3. The medium-term outlook is bullish for the rupee to test 59 and even 58.

However, an intermediate fall to 61 and 62, key medium-term supports, cannot be ruled out.

Rupee Devaluation Against Dollar & Indian Prime Minister.

China, Germany to build Yuan or RMB Trading center

Beijing and Berlin agreed to launch an offshore yuan trading centre on Friday as President Xi Jinping visited Germany on the third leg of his European tour.

The central banks from both countries - the Bundesbank and the People's Bank of China - signed a Memorandum of Understanding in Berlin to allow the clearing and settlement of yuan trades in Frankfurt.

The centre, in Germany's financial capital, will be the first of its kind in the eurozone.

It forms part of a series of deals the two countries signed on Friday, which sources say could be worth billions of euros. China will also set up a consulate in Duesseldorf.

The trading centre will be a "great facilitator for both China-Germany trade and China-EU trade", said Meng Hong, an expert on Germany at Renmin University of China.

Maggie Zhao, a senior associate at the law firm Clifford Chance in London, said the agreement demonstrates a commitment by both governments to work together on yuan internationalization.

"It shows that the Chinese government is keen to support the yuan's internationalization, and that the German government is keen to support its financial services industry to get more involved in the yuan internationalization process," Zhao said.

In his meeting with German Chancellor Angela Merkel, Xi said deepening bilateral relations between the two countries will be beneficial to Europe and the world.

He said the next five to 10 years will be a key period for mutual growth.

The two countries will also set up a new dialogue mechanism on diplomacy and security, he said.

Merkel thanked China for its support and trust in the euro during the eurozone crisis and vowed to strengthen yuan cooperation with Beijing.

It is the first State visit to Germany by a Chinese president for eight years. During the two-day visit, leaders of both countries will map out the direction for bilateral relations in the next five to 10 years.

After arriving in Berlin on Friday morning, Xi said cooperation between China and Germany has been fruitful since the countries established diplomatic relations more than 40 years ago.

Both nations now share broader common interests and new cooperation opportunities, he said.

Germany is China's biggest trade and technology partner in the European Union. Bilateral trade volume reached $161.6 billion in 2013, 580 times that of 1972 when the two countries established diplomatic relations.

Claudia Schmucker, head of the Globalization and World Economy Program at the German Council on Foreign Relations, said Germany and China are very much reform-oriented.

"Therefore, I believe that the Germany-China economic and trade relationship will continue to increase and deepen in the upcoming years," Schmucker said. "Germany has always played a pivotal role in the EU-China relationship and this will continue."

German Ambassador to China Michael Clauss said, "We have growing German investment into China and we also wish to have more Chinese investment into Germany. "

He said Chinese investment in German companies is very welcome, including medium-sized and small companies. "Germany has profited from this a lot in past decades, so it really is a win-win situation," the ambassador said.

On Saturday, Xi will visit North Rhine-Westphalia to await the arrival of a train loaded with IT products on a 16-day journey from Chongqing.