Risk upbeat as China data beats estimates

Retail sales, industrial production top estimates

China’s industrial production rose 6.9% y/y in December, well above economists’ estimates of +5.9% and the fastest gain since March 2019. For the full year, production grew 5.7% y/y, slightly higher than survey forecasts of +5.6%.

Retail sales jumped 8.0% y/y, more than expected and the same pace as November. The total for the full year was also +8.0%, which matched economists’ estimates.

 

Q4 GDP as expected

The Chinese economy expanded 6.0% y/y in the fourth quarter, as expected, and managed to cling on to the 6% handle despite the US-China tariff confrontation. In the accompanying statement, the National Bureau of Statistics cautioned that downward economic pressure was still at large. The overall growth number for 2019 came in at 6.1%, below forecasts of 6.2% and slower than 2018’s 6.6% expansion.

The breakdown of the numbers showed consumption accounting for almost 60% of 2019 growth while net exports accounted for 11%. Other highlights included coal output growing 4.2% y/y but pork production slumped a hefty 21.3% y/y due to the outbreak of African swine fever for most of the year.

 

Risk appetite given an extra boost

The better production and retail sales data gave risk appetite a temporary lift after the release. Since the open, equity markets had been trading in positive territory, and the strong data affirmed that move. US equity indices are up between 0.04% and 0.07% ahead of the long weekend due to Martin Luther King Day on Monday, while China shares rose initially but are now down 0.15%, extending a three-day losing streak.

Risk-beta currencies were mixed at the open, pushed higher after the China data but since reversed direction. The Australian dollar slid 0.08% versus the US dollar and 0.03% versus the Japanese yen. USD/JPY was slightly higher at 110.22 while EUR/USD retreated 0.03% to 1.1132 having touched a nine-day high yesterday.

 

EUR/USD Daily Chart

Source: OANDA fxTrade

 

Will UK retail sales echo upbeat data elsewhere?

Retail sales in the US were steady at higher levels in December, and today we see if the UK can match that performance. Estimates suggest sales grew 2.6% y/y, an advance from the +1.0% seen in November. The final reading of Euro-zone CPI for December is expected to be revised higher to +0.3% from -0.3% at the first estimate, while construction output is expected to jump 1.9% y/y in November from +0.3% the previous month.

The US session features US housing starts and building permits for December (both seen lower than November) together with industrial production and capacity utilization (also both worse than the previous month). The provisional reading for January’s University of Michigan consumer sentiment index completes the session (unchanged at 99.3) while the session is interspersed with speeches from the Fed’s Harker, Quarles and Bowman.