Chinese Data Disappoints Weighing on Riskier Assets

European stock markets are mixed as Bund futures were on their way to pare early losses, but seem to have been knocked back by headlines citing ECB’s Jazbec as saying that a decision on tapering is “inevitable”. The EUR/USD edged lower pushing through the 1.19 handles while the SNB failed to drop the reference to “significant” overvaluation of the currency in its policy statement today. Italian inflation was confirmed well below the ECB targets level and Chinese retail sales and industrial production were softer than expected.

Italian HICP inflation was confirmed at 1.4% year over year, in line with the preliminary number and up from 1.2% year over year in the previous month. The national rate rose to 1.2% year over year from just 1.1% year over year, with energy prices a main driving factor. Still, core HICP inflation stood at 1.1%, up from 0.8% in July as services price inflation accelerated. The Italian HICP rate remains far below the ECB’s definition of price stability and compared to the 2.0% year over year rate in Spain, the data highlights that ECB’s problem amid ongoing cross-country divergence in developments, which are making the central bank’s life not any easier as officials prepare to take the foot off the accelerator.

SNB leaves rates unchanged tweaks language on CHF only marginally.

The Swiss central bank left overall policy setting unchanged, with the Libor target range confirmed at. -0.75% The statement said negative interest rates and the SNB’s willingness to “intervene in FX market as necessary” “remain essential in order to reduce the attractiveness of the Swiss franc investment and thus ease pressure on the currency”. The SNB did acknowledge that the Swiss franc has weakened against the euro and appreciated against the dollar, saying that “this development is helping to reduce, to some extent, the significant overvaluation of the currency”, but the fact that the SNB didn’t drop the “significant” from the statement and added that despite recent developments, the CHF “remains highly valued, and the situation on the foreign exchange market is still fragile” means the statement was softer than some expected.

China’s retail sales, industrial production, and fixed investment was disappointing in August. Retail sales slowed to a 10.1% year over year pace in August from the 10.4% rate of expansion in July. But year to date retail sales growth was 10.4% in August, matching July. Industrial production growth was 6.0% year over year in August versus the 6.4% rate in July. But year to date production dipped to 6.7% from 6.8%. Fixed investment slowed to a 7.8% year over year growth pace in August from 8.3% in July. But foreign direct investment did improve to a 9.1% year over year pace in August from 2.3% in July, after contracting 3.7% in May and falling 4.3% in April.