Chinese GDP Comes in Higher Than Forecast

Although expansion has been faltering in many areas of the economy, data released by the National Bureau of Statistics and the People’s Bank of China overnight added to confidence that policymakers would take the steps necessary to preserve growth.  Amid the weakest expansion in decades, the only real disappointment was industrial production which climbed by 9.00% year over year versus expectations of 9.40%.  However, despite the one negative mark, the quarterly GDP growth acceleration was enough to defuse some anxiety after rising significantly to 1.80% after printing at 1.10% for the first quarter. The positive developments were accompanied by stronger retail sales figures with annualized spending rose by 10.60% and new loan creation surged by 14.30% over the last twelve months.  Risk assets rose across Asia on the news, led by stocks while the USDCNH pair continues to trade nearly unchanged at 6.6909.

In another positive sign for the outlook for US monetary policy, the latest producer price index report shows that inflation is rising at a blistering pace, helping to raise the probability of further rate hike normalization.  As one of two Federal Reserve mandates, inflation is a critical component of decisions that has remained stubbornly low over the last year.  However, with the pace of increase accelerating to 0.50% on a monthly basis and 0.30% on an annualized basis suggests that the stage is set for another climb higher in consumer price inflation.  All eyes will be trained on US consumer price inflation set to be released later in the session, with the hope that annualized CPI reflects strengthening price developments in other areas as the threat of disinflation fades.  Data has supported the continued USDJPY push higher as risk sentiment improves on the back of stronger data.