China Manufacturing Growth Tops Expectations

Daily Analysis - 31/05/2017

Stronger Data Sends Yuan Surging to Multi-Month Highs

Managing to top forecasts, Chinese manufacturing grew in May at a faster pace than expected according to a government survey released on Wednesday. Meanwhile, the official services PMI also expanded this month, spurring a subsequent overnight selloff in the USDCNH pair.

Steel Powers Chinese Manufacturing

Despite the unfolding concerns facing the Chinese economy, the Chinese National Bureau of Statistic's official Manufacturing Purchasing Managers’ Index came in at 51.2 for May, higher than the 51.0 expected by economists surveyed by Reuters while matching the April figure of 51.2.

The strong growth in manufacturing came on the back of a substantial increase in steel activity. Another survey conducted by the China Federation of Logistics and Purchasing showed the steel PMI rallied to 54.8 in May from 49.1 last month, the fastest pace of growth reported in a year.

China's official services PMI also edged higher to 54.5 from 54.0 in April, with any figure below 50.0 indicating contraction.

USDCNH is tumbling in early Wednesday trade, with the pair breaking below a key support zone to last trade around 6.7800.

US Home Price Gains Endure

Following weaker data pertaining to new and existing US home sales, home price gains remained strong in March, holding at the strongest rate in years as a tightening of supply caused prices to outpace income growth.

S&P’s Case-Shiller Home Price Index composite which tracks values in 20 major cities rose by 5.90% over the 12 months ended March 31^st, the fastest pace of increase since July of 2014.

Values of homes are growing at more than double the rate of average hourly earnings, making it increasingly difficult for individuals to afford a home. The largest gain was seen in Seattle, where prices surged 12.30%.

Portland and Oregon both reported a 9.20% increase, while in prices in Dallas climbed by 8.60%.

In the meantime, Dow futures are currently perched just above the 21,000-mark.

UK Consumer Confidence Edges Higher

Britons felt more upbeat about their personal financial situation and the wider economy as evidenced by the latest survey data showing UK consumer confidence unexpectedly strengthened in May.

Market research conducted by GfK reported a modest gain in consumer morale during April, rising to -5 from -7 while easily topping a Reuters poll of economists, which had forecast a tumble to -8. The Pound's steep depreciation in the wake of last year’s Brexit vote has accelerated inflation and dented wage growth.

However, GfK notes that despite the cost of living increasing significantly, consumer sentiment has remained fairly resilient. Separately, a survey by the British Retail Consortium showed shop prices declining in April at the slowest pace since 2013.

After declining on the heels of growing political uncertainty, EURGBP is up early Wednesday and was last seen trading around 0.8730.

Japan Industrial Output Rebounds

After two straight months of contraction, Japan’s industrial output recorded its biggest jump in close to six years during April according to preliminary government data released overnight.

Figures compiled by the Ministry of Economy, Trade reported a production increase of 4.00% last month compared to the consensus estimate of a 4.30% gain following a -1.90% decline recorded back in March.

Even though the annualized figure missed forecasts of a 6.10% improvement, the increase of 5.70% was nevertheless strong and indicative of a strengthening outlook. Overseas demand continued to boost the country’s economic recovery, with output of cars and semiconductor equipments posting substantial growth.

Manufacturers polled by the Ministry now expect output to dip -2.50% in May and rise 1.80% in June.

AUDJPY is largely unchanged in early Wednesday trade, with the pair currently hovering around 82.660, below strong resistance sitting at 83.000.