Chinese IP growth slows further in August

Monday, September 15, 2014

Chinese industrial output increased at its slowest pace since December 2008 as fixed asset investment growth came in shy of expectations in August, adding further evidence to the argument that growth in the world’s second largest economy is losing momentum. Industrial production in August increased 6.9% y/y according to NBS data released over the weekend, missing expectations of 8.8% y/y growth and markedly lower growth than the previous month’s 9.0% y/y increase. Fixed asset investment grew by a year-to-date rate of 16.5% y/y, slightly below the previous month’s figure of 17.0% as a cooling property market continues to weigh heavily on markets. Retail sales growth also came in below consensus estimates with growth slowing to 11.9% y/y in August compared to expectations of 12.1% y/y. The continued slowdown has brought Beijing’s 7.5% growth target for 2014 into question once again and could spur policymakers into action with market participants speculating that the reserve requirement ratio for major lenders could be lowered in a bid to increase lending. Mainland equity indices posted steady gains overnight despite the weaker industrial production data as a growing camp of investors speculated that the government will ease policy measures to spur growth.

The AUD fell to a five and a half month low against the dollar on the weaker than expected Chinese data as the commodity currency traded below 0.9000 for the first time since 20th March. The move overnight marks the sixth consecutive session of losses bringing total losses throughout September to 4.0% as investors reacted bearishly to the disappointing industrial output data. The Aussie dollar could experience further selling pressure throughout the week as investors eagerly await this month’s FOMC meeting, due to take place on Wednesday and Thursday this week. Any hawkish stance off the back of positive US macro data could see further dollar strength in the coming sessions.

Front month Brent futures extended the precipitous decline during overnight trading as contracts for October delivery traded towards $96.20/bbl for the first time since July 2012. With selling pressure prevailing early on Brent contracts are on track to close lower for the eighth straight session having shed over 6.6% since the start of the month, however, with October contracts due to expire today we could see a late stage price rally towards the close on short covering. Fundamentals remain weak despite the ongoing conflict in Iraq as fighting remains localised in the north, sparing the oil rich southern fields and with the US ready to step up efforts in the fight against IS we could see downward price pressure prevail in the coming week.

Chinese industrial output growth slows to levels last seen during the financial crisis

CHVAIOY Index China Value Added 2014 09 15 07 20 45

AUD slips below 0.9000 against the USD

AUD Curncy Australian Dollar Sp 2014 09 15 07 34 32

Brent futures trade at fresh YTD low on Chinese data

CO1 Comdty Generic 1St CO Fut 2014 09 15 07 48 10

Events for today

JP Market Holiday 

1000

EZ

Jul

Eurostat Trade

1330

US

Sep

NY Fed Manufacturing

1415

US

Aug

Industrial Production

1415

US

Aug

Capacity Utilization

LT: 

Oct  Sugar (LIFFE) 

FN: 

Oct  Sugar (LIFFE) 

OE:

Oct  Crude WTI (NYMEX) 

All times UK Local Time

 

Topics: US Fed, Brent, AUD
More from: Kash Kamal