Another chink in the armour - China’s data for July fails to impress, so risk taken off the table in Asia


MAJOR HEADLINES – PREVIOUS SESSION

  • NZ Jul. Credit Card Spending out at +0.8% m/m vs. -1.0% prior

  • UK Jul. RICS House Price Balance out at -8.1% vs. -10.0% expected and revised -17.6% prior

  • SI Q2 Final GDP out at +20.7% q/q vs. +19.2% expected and revised -12.2% prior

  • AU NAB Jul. Business Conditions out at +1 vs. -2 prior

  • AU NAB Jul. Business Confidence out at +10 vs. +4 prior

  • China Jul. PPI out at -8.2% y/y vs. -8.3% expected and -7.8% prior

  • China Jul. CPI out at -1.8% y/y vs. -1.6% expected and -1.7% prior

  • China Jul. Retail Sales out at +15.2% y/y vs. +15.0% expected and +15.0% prior

  • China Jul. Industrial Production out at +10.8% y/y vs. +11.5% expected and +10.7% prior

  • China Jul. Fixed Asset Investment out at +32.9% vs. +34.0% expected and +33.6% prior

  • China Jul. New Yuan Loans out at 355.9 bln vs. 500.0 bln expected and 1,530.4 bln prior

  • JP BOJ leaves rates unchanged at 0.1%, as expected

  • JP Jul. Consumer Confidence out at 39.7 vs. 38.0 expected and 38.1 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE Wholesale Price Index (0600)

  • GE Final CPI (0600)

  • Sweden CPI (0730)

  • UK Trade Data (0830)

  • UK DCLG House Prices (0830)

  • CA Housing Starts (1215)

  • US Non-farm Productivity (1230)

  • US Unit Labour Costs (1230)

  • US Wholesale Inventories (1400)

  • US IBD/TIPP Economic Optimism (1400)

  • US 3-Year $37 bln Note Auction (1700)

  • US ABC Weekly Consumer Confidence (2100)

Market Comments:

With an almost bare data slate overnight, it was left to sentiment, order flows and equity markets to determine FX direction. Wall St corrected some of Friday’s gains, and it looked to be a broader “risk-off” day in the normal manner of things, ie. the dollar gaining as equities softened. GBP was the major under-performer overnight as the last QE expansion from the BOE weighed on the pound. In addition, UK press was particularly negative over the weekend, one piece warning that the UK could witness a “lost decade” of growth, Japan-style. Another piece centred around the BOE’s quarterly inflation report due on Wednesday, suggesting that speculation was increasing that the BOE’s economic growth forecasts would be downgraded. There was further negativity from the Times reporting that Lloyds Banking Group was considering a GBP15-20 bln rights issue to reduce its reliance on the government’s asset protection scheme. All in all, the pound slumped to its lowest level this month. EUR was a touch more hesitant but still failed to hold onto the 1.42 handle while USDCAD rallied as oil prices slid back towards $70.

In contrast to the overnight session, Asia was treated to a slew of Chinese economic data for July early in the morning. Most of the numbers were in line with, or close to expectations but industrial production for the month missed the target by some distance. While growing at 10.8% y/y, the fastest rate in 9 months, the market was looking for a more healthy +11.5% and the initial reaction, albeit slow and delayed, was to give the AUD a nudge lower while JPY crosses looked decidedly tired. Subsequently, the China lending data for July was also below forecast, suggesting that official moves to slow excessive lending were working. That said, June’s lending figures were astronomical and possibly a pre-emptive push by banks. The 2-month average for June/July remains a respectable Yuan 943.15 bln.

The other data releases appeared to be AUD supportive, if anything. The NAB index of business conditions climbed into positive territory with a 3 point gain to +1, coming on the back of June’s 12 point gain. Business confidence was also on the up, rising by another 6 points to +10 and at its best level since August 2007.
Broad-based improvements contributed to the upbeat report, with forward orders rising 5 points and employment intentions also higher. Despite the positive tone, AUD only managed a 0.8380 high before being knocked back. Overall, we were looking at a “risk-off” session in Asia with JPY crosses retreating though the USD index was still marginally in negative territory.

As we head into the European open, we will see CPI from Germany and Sweden with the UK trade data also accompanying. Later in the US session, non-farm productivity, unit labour costs and wholesale inventories are on tap along with Canada housing starts. Not forgetting we have the first of this week’s record $75 bln worth of US Treasury auctions - $37 bln worth of 3-year notes.