Chinese Economy Cools

Daily Analysis - 14/09/2017

Output, Retail Activity, and Investment Slow During August

The pace of Chinese economic expansion cooled unexpectedly last month as factory output, retail sales and investment growth all tapered in August. The latest batch of lacklustre data suggests the economy might have already peaked during the first half of 2017.

Chinese Regulatory Brakes Dampen Outlook

Following a strong start to the year, Chinese fundamentals are beginning to deteriorate starting with industrial production which slowed to 6.00% expansion from a year earlier through the end of August. Retail sales rose 10.10% from a year ago versus the consensus estimate of 10.50%, also marking the slowest expansionary reading this year for the category. Fixed asset investment in Chinese urban areas gained 7.80% in the first eight months of the year, slipping to the slowest rate of increase since 1999. The string of weaker than expected key economic data points in the world's second largest economy indicate that efforts to rein in credit growth are beginning to kick in. Chinese policymakers are unlikely to take their foot off the regulatory brakes given the excess capacity in the economy. The USDCNH pair is gaining early Thursday to last trade around the 6.5535-mark.

US Records Marginally Higher Budget Deficit

The United States Federal Government ran a slightly larger budget deficit in August compared to a year earlier, while the deficit through the first eleven months of the current fiscal remained well above the year ago period. Data from the Treasury Department’s monthly budget statement released on Wednesday revealed that the August deficit totalled $107.70 billion, up 0.50% from a $107.10 billion deficit recorded in August of 2016. Economists surveyed by Reuters had anticipated a $119.50 billion deficit for the period. However, for the fiscal year to date, the shortfall was much wider at $674.00 billion, up 9.00% from a year ago. The Congressional Budget Office had in July lifted its estimate for this year's deficit to $693.00 billion, representing an 18.30% increase from the 2016 deficit. After extending a recent winning streak through Wednesday, Dow futures are trending modestly lower, giving back all the prior session’s gains.

UK Wage Growth Disappoints

Sterling retreated from a one-month high against the Swiss Franc after British wage growth data came in weaker than forecast. Wages plus bonus for the three months ending in July gained 2.10% from a year ago, remaining unchanged from the prior months’ growth rates. Economists surveyed by Reuters had on average projected a 2.30% rise for the period. The tepid wage growth figure came despite unemployment in the country falling to a fresh multi-decade low. The Office for National Statistics report issued on Wednesday showed that the jobless rate for the three months to July dropped to 4.30%. Apart from marking the lowest level of unemployment in over 40 years, it underscores the UK’s impressive run of job creation since the 2008 financial crisis, beating economist estimates anticipating a steady rate of 4.40%. GBPCHF is currently hovering around 1.2750 after edging higher following Wednesday’s retreat.

Euro Zone Industrial Production Rebounds

Industrial output across the Euro Area bounced back in July after a steep decline in June, buoyed by an increase in production of consumer durable goods. Official data showed that overall output edged 0.10% higher month over month, matching expectations following a -0.60% slide in June. The European Union’s statistics office Eurostat indicated production of durable goods, such as cars, climbed 0.70% in July as firms predicted stronger consumer demand for more expensive goods. Investment in capital goods like machinery also rose 0.80% during the period, notching the biggest gain amongst the various components of the indicator. Year-on-year growth stood at 3.20%, coming in just slightly below market forecasts for a 3.40% increase. EURGBP is managing to hold steady just above strong support at 0.8980 in Thursday morning trade.