Chinese Retail Sales and Industrial Production Go Some Way to Ease Concerns Over Chinese Hard Landing

Importance of This Event:

Data from China showed that the economy continues to show strong activity, with both retail sales and industrial production climbing more than expected for the month of June.

Retail sales rose 17.7% compared to the same period last year. That was stronger than in May, when sales were 16.9% year-over-year, and better than expectations of a 17.0% figure.

Industrial production data showed output climbing 15.1% on the year, also strongly above the 13.2% expected, and 13.3% seen in May.

The figures for 2nd quarter GDP growth, which were also released today matched forecasts, climbing 9.5% in annualized terms, which was slower than 1st quarter growth of 9.7%.

Still, the better than expected readings on both domestic demand and manufacturing should ease concerns that the Chinese economy is heading for a hard landing.

Recent Background:

The concern about China is whether the country will have a hard or soft landing. Recent reports, such as the June manufacturing PMI showed manufacturing basically flat for the month, giving the impression that the economy had hit the brakes. Today's data shows that manufacturing activity increased during the month.

Data on money supply and bank lending this week showed that the flow of credit is stronger than expected despite the authorities attempts to curb demand via higher interest rates and curb lending by instituting record high reserve ratio requirements.

The question however was after an interest rate hike last week and with inflation moving above 6% in June if China's central bank officials were going to continue with rate hikes, even at the expense of weaker economic growth, causing concerns about global growth.

See this week's Fundamental Article: More Chinese Rate Hikes This Year? Lending and Money Supply Suggests Yes, Awaiting GDP

Instead it seems that if the bank wants to tighten rates further, the economy can handle it considering its strong performance during the month.

Implication on Currencies:

What this means is that the Asian Pacific economies that rely heavily on Chinese imports of their commodity exports do not have to worry that there will be a sudden drop off in demand for their raw materials and food products.

In the aftermath of the release, we saw a slight pick up in both the AUD/USD and NZD/USD, and the news should help overall risk sentiment - though that has been badly damaged this week because of the concerns over Italy and sovereign debt issues. Going forward however, this data should reinforce and support these two commodity currencies.

For more on the AUD, see today's Technical Update: AUD/JPY Is Bearish; Short-term Outlook Can be Bullish After Decent Data from China

Let's see if this data can help carry over into the rest of the global session, helping to lift higher yielders at the expense of safe-haven currencies.

Nick Nasad
Chief Market Analyst
FXTimes