China Industrial Production Grinds to a Crawl in July

Highlights

• The RBA and Australian wage growth figures took a back seat today, with the Chinese economy in focus.
• Investors hoping for a modest improvement in economic conditions will be disappointed.
• Industrial production in China rose 3.7% YoY in July versus 4.4% in June, with retail sales rising by just 2.5%.

It was a busy start to the Tuesday session. The RBA meeting minutes and Australian wage growth figures drew early interest. However, economic indicators from China were the focal point as investors grappled with a deteriorating macroeconomic environment.

This morning, fixed asset investment, industrial production, retail sales, and unemployment numbers from China were in focus. The numbers disappointed investors hoping for signs of a shift in direction.

Industrial production increased 3.7% year-over-year in July versus 4.4% in June, with retail sales up 2.5% versus 3.1% in June. Economists forecast increases of 4.5% and 4.8%, respectively.

Other indicators were also bearish. The unemployment rate increased from 5.2% to 5.3%, with fixed asset investments rising by 3.4% versus 3.8% in June. Economists forecast fixed asset investments to be up 3.8%.

Today’s figures aligned with recent economic indicators, including the latest trade data and Caixin Manufacturing PMI numbers that call on Beijing for much-needed stimulus.

AUD/USD Reaction to the China Stats

Before the numbers from China, the AUD/USD fell to an early low of $0.64629 before rising to a pre-stat high of $0.64942. Australian wage growth and the RBA meeting minutes sent the Aussie Dollar briefly south ahead of the numbers.

However, in response to the economic indicators from China, the Australian Dollar fell from $0.64888 to a post-stat low of $0.64810.

This morning, the AUD/USD was down 0.09% to $0.64812.

Next Up

US retail sales and the NY Empire State Manufacturing Index will move the dial. We expect the retail sales figures to have more impact.

Economists forecast retail sales to increase by 0.4% in July versus +0.2% in June.

A jump in retail sales could force the Fed to hike rates to curb spending and eliminate the demand effect on consumer price inflation.

Hotter-than-expected US retail sales would also signal further divergence between the euro area and the US economies and respective central bank policy outlooks.

However, with the manufacturing sector accounting for less than 30% of the US economy, the NY State numbers are unlikely to influence the Fed.