China Reports Upbeat Economic Data

Daily Analysis - 17/07/2017

Chinese Gross Domestic Product Expansion Tops Forecast

Defying investor concerns of a slowdown amid high levels of debt, China reported a string of better than expected economic data. According to official data released early Monday, second quarter GDP growth in the world’s second biggest economy managed to beat forecasts.

Industrial Output, Retail Sales Boost Chinese Sentiment

A slew of positive data was reported from China overnight, with second quarter GDP growth coming in at a hotter than anticipated 6.90%, topping the consensus estimate of a 6.80% increase during the April to June period. China is targeting slower annual economic growth of 6.50% this year versus the 6.70% pace recorded in 2016. With the first two quarters of year recording 6.90% expansion, the Chinese government will now have a greater cushion to absorb slower growth during the second half of the year when tightened policy and deleveraging are likely to commence.

Separately, industrial output and retail sales came in well ahead of expectations at 7.60% and 11.00% respectively. Fixed asset investment from January to June also rose 8.60% year-on-year, edging past a Reuters poll of 8.50%. After tumbling last week, USDCNH is modestly higher on the session, trending near 6.7700.

US Dollar Subdued After Inflation Blow

The US dollar is trading just above its lowest point since May of 2016 against the Euro as the decreased risk of aggressive US policy tightening saw investors flock to higher yielding currencies and riskier assets. Figures released Friday showed surprisingly soft consumer prices and retail sales data, raising concerns about the US Federal Reserve's confidence that domestic inflation would soon rebound.

Consumer prices remained unchanged in June, while retail sales fell for a second straight month, diminishing the likelihood of a third interest rate hike this year. Fed funds futures current indicate a roughly 50-50 chance of another interest rate increase by December. In the meantime, EURUSD was last seen around the 1.1450-mark, trending just below the strong resistance level at 1.1480 reached last week.

Brexit Talks Set To Resume

UK Brexit Secretary David Davis will resume a fresh round of negotiations on Monday when he meets the European Commission's Michel Barnier in Brussels to discuss the terms of his country’s withdrawal from the European Union. With a little over a year left to settle the terms of the divorce before Britain exits on March 30^th, 2019, the EU countries want British Premier Theresa May to gather her divided country behind a clear and detailed withdrawal plan that can minimize social and economic disruptions across the currency bloc.

Negotiators from both teams will break into separate groups to discuss two key areas - citizens' rights and the EU’s demand that the UK pay EUR 60 billion to cover budget commitments - before a scheduled news conference on Thursday. FTSE 100 futures are up in Monday morning trade to currently hover around 7330.

Mexican Peso Logs Best Week in Six Months

A greenback retreat following downbeat US economic data saw the Mexican Peso claim its biggest weekly victory since late January after the currency rallied for a seventh consecutive day on Friday. Analysts have been busy upgrading their forecasts for the Peso in recent weeks, buoyed by growing optimism about the state of Latin America’s second-largest economy.

Investor sentiment has also been boosted by the ongoing turmoil in the Trump administration, which has reduced the US President’s ability to follow through with his campaign threats to introduce protectionist trade measures. Mexico’s Central Bank has provided further support by aggressively lifting interest rates by 375 basis points in the past 16 months. After substantial weakness, the USDMXN pair is mounting a pullback early Monday to trade around 17.5945.