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Shanghai stocks bounced 2.5% last night thanks to fantastic import and export numbers for January, but the main event comes tonight with the inflation data.

Imports surged 51% and exports climbed 37% on a year-over-year basis, leaving the Chinese trade surplus weighted toward exports by only $6.5 billion for the month.

Persistent strength in China’s export sector is great news for the health of export-heavy funds like  FXI  (quote), while the import story favors commodity plays including  food, the miners like  RIO  (quote) and  oil.

But the big numbers come out tonight. There seems to be a weaker CPI built into this trade release — food prices should have come down a bit, despite the massive upswing in imports.

Can we really believe that Beijing has inflation under control here? As always, there is the question of whether the numbers are being manipulated to keep both the populace and global investors from panicking. In this case, the recalculation of the CPI may be enough to sweep real food inflation under the rug.

We currently expect consumer prices to come in at 4.9% year-over-year tonight, compared to a 5.4% print last month. However, this is probably just a reflection of a change in the CPI basket that deliberately weights food inflation less heavily.

Either way, the shorts are getting squeezed in Shanghai, which tells us that the market may be heading higher again.

While we are looking at China macro, take a look at the drop in money market yields after the most recent  PBOC rate hike. Bank liquidity is already improving again.

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