China's Q2 GDP came in marginally below expectations, but most other June data including retail sales, industrial production and fixed assets beat consensus. Strategists at TD Securities think the data bodes well for the yuan, with USD/CNY likely to consolidate below 6.50, but will be taken less well by CGBs following their recent sharp rally.
Sales, IP, Fixed Investment beat expectations, GDP misses
“China's Q2 GDP grew by 7.9% YoY (TD 8.3%, cons 7.9%, last 18.3%) and while only growing by a limited 1.3% QoQ it still increased by a healthy 12.7% YoY in H1 2021. The data suggests that growth is easily on track to meet the official target of more than 6% for the year. While China is likely past peak activity, today's data slate suggests softening in activity will not be too dramatic.”
“Industrial production increased by 8.3% YoY in June (TD 8.3%, cons 7.9%, last 8.8%) driven by strong gains in Pharma. Retail sales grew by 12.1% (TD 10.5%, cons 10.8%, last 12.4%), with the 2y annualized rate (taking out the impact of COVID-19) showed that sales grew by a reasonable 5.3%, driven by urban areas. Fixed investment increased by 12.6%, cons 12%, last 15.4%) and increased by a healthy 4.5% on a 2yr annualized basis. Meanwhile the unemployment rate remained at 5.0% in June in line with expectations.”
“We think the data bodes well for CNY, with USD/CNY likely to consolidate below 6.50, but will be taken less well by Chinese bonds (CGBs) following their recent sharp rally.”
“The data is also encouraging for assets outside of China. Today's data will at least help to alleviate concerns that a sharper slowing in Chinese growth will add to the pressure on regional recovery. That said, we think a slowing in China's trade in the months ahead will have a negative impact on Asia regional trade with the region increasingly likely to see growing domestic demand as economies re-open.”
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