Investors Digest String of Tepid Chinese Data

Daily Analysis - 14/11/2017

Beijing’s Curbs Hit Factories, Retailers, and Property

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The Chinese economy cooled further in October, with factory output, retail sales and fixed-asset investment falling short of expectations following an extended government crackdown on debt risks and industrial pollution. Policymakers are walking a tight rope as they continue to rebalance the economy away from traditional drivers like manufacturing and exports.

Chinese Economic Expansion Dialled Back


Data released overnight signalled a potential moderation in growth ahead over the coming few quarters as credit expansion decelerates.  Apart from the financing aspect, year-over-year industrial output slipped to 6.20% in October, missing analysts’ projections of a 6.30% gain and coming in below a 6.60% gain recorded in September. Fixed-asset investment growth slowed the January-October period according to figures from the National Bureau of Statistics while October retail sales climbed 10.00% from a year earlier, falling to its slowest rate in a year.

China’s economy outpaced the dire forecasts from financial markets after reporting solid growth of almost 6.90% in the first nine months of the year. However, momentum is likely easing as Beijing’s clampdown on debt risks stifles demand while tighter pollution rules impede factory output. USDCNH is slipping in Tuesday trade to currently hover around 6.6470.

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US Begins New Budget Year with Deficit Spike


Figures unveiled by the US Department of the Treasury on Monday displayed the impact of higher spending from Washington after the Federal Government posted a -$63.00 billion deficit in October. The deficit was in-line with projections of analysts interviewed by Reuters. The government ramped up outlays last month to $299.00 billion, rising by 38.00% or $31.00 billion from the same period last year. Over the same period, revenues rose to $235.00 billion, up $14.00 billion year over year.

Taking into account calendar differences, the budget deficit widened to -$116.00 billion in October from the -$86.00 billion reported during the corresponding month of 2016. The majority of economists reckon that the deficit will rise even higher during the current budget year amidst the impact of the proposed tax cuts and ongoing hurricane relief efforts. Meanwhile, USDCHF is extending a reversal higher from the lows of last week to currently trend near 0.9965.

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Australian Business Optimism Improves


Per a leading survey released overnight, business conditions in Australia soared to their highest point on record, reinforcing signs of a strengthening labour market and a pickup in investment. The National Australia Bank’s poll of over 400 firms revealed its index of business conditions surged 7 points to 21 in October, the highest since the bank began compiling data in 1997 and quadruple its long-term average of 5. The more volatile measure of business confidence unexpectedly held steady at 8.

Breaking out the individual components, the index gains were almost completely driven by increased sales and profitability. Employment remained unchanged, but was nonetheless high enough to suggest further jobs growth while labour costs fell sharply. However, the NAB survey contrasts sharply with consumer sentiment, which remains subdued due to rising utility costs and anaemic wage growth. AUDUSD has rebounded modestly from Monday’s close, hovering just above 0.7630.

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South African Rand Tumbles to 1-Year Low


Amid news of a top Treasury official’s resignation and increased political jostling in the ruling African National Congress, South Africa’s Rand shed more than -1.00% on Monday to hit its lowest level since November of 2016. The Rand was rocked by reports that long-time budget head of the National Treasury, Michael Sachs, quit last week over interference by President Jacob Zuma.

The Zuma government is considering a range of budget cuts that is likely to include cutting social grants for the most vulnerable citizens in order to finance free tertiary education. Investors were also jittery ahead of next week’s evaluations due from ratings agencies. S&P Global Ratings and Moody's are scheduled to review the country’s credit rating on November 24th. USDZAR was last seen around the 14.4800-mark in Tuesday morning trade.

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