There Is No Question About It “China Is Slowing Down”

Chinese data had been the elephant in the room during the Asian session as most currency crosses responded to the decline in the US dollar. Data from the Giant Red Dragon just hit the wires. Industrial production missed expectations as well as printing lower than last month. Data showed growth in the sector fell to 5.6% as markets had hoped for a reading of 5.8% after massive stimulus programs from the government and the PBOC. Fixed Asset Investment met forecasts which was lower than last months and continues to show a steady decline. Within minutes of the data release the Australian dollar held steady with gains of 36 points to trade at 0.7066. The New Zealand dollar was up 50 points to 0.6581 showing no reaction to the Chinese numbers. The bright spot was retail sales, which grew by 11.0 per cent in October from a year earlier. That’s a small improvement from a 10.9 per cent pace in September and expectations for growth to hold steady at that level. They’re also at their fastest pace since December last year.

Asian share markets drifted lower on Wednesday as anxiety mounted ahead of another batch of Chinese data while strength in the U.S. dollar kept the screws on global commodity prices. Markets will be vulnerable to any whiff of disappointment in Chinese figures on retail sales, industrial production and urban investment, particularly given recent downward surprises on inflation and trade. Share markets also showed little reaction.

Market analysts are already a little bit jittery following the release of consumer price inflation in China, which slowed to just 1.3 per cent year-on-year in October, the slowest pace since May, while producer prices continued to contract. Moreover, recent trade data showed Chinese exports fell 6.9 per cent in October from a year earlier, stirring concerns about the outlook for the Chinese economy and the flow-on impacts to global growth, more broadly.

Today’s numbers will do little to change the view that China’s economy is slowing. The People’s Bank of China is still seen by many as having space capacity to keep easing monetary policy in an effort to cushion the economy as it moderates, and that in itself is probably making some pundits relatively relaxed about any data “misses”.

The US dollar is trading at 98.98 down 29 points in the morning session even though more Federal Reserve speakers this week pointed towards a December rate increase.

The Japanese yen is trading at 122.87 down by 29 points pacing the decline in the US dollar index. Against the euro the pair is up 17 points at 132.25. The world’s third-largest economy contracted in the third quarter, analysts predict, marking its second recession since Prime Minister Shinzo Abe took office in December 2012. Other measures paint a different picture with the unemployment rate near its lowest level since 1997, a gauge of industry indicating seven-straight months of expansion, and companies clocking up record profits. The nation is even making headway on the inflation front. Japan has undertaken massive monetary and fiscal stimulus under Abe, boosting exporter profits and stocks as the yen weakened about 30 percent against the dollar. The yen is now entering a period where it may even outpace the dollar amid risks of heightened financial market volatility as prospects increase for the Federal Reserve to raise its benchmark interest rate in December.

The euro gained 42 points against the weaker US dollar to trade at 1.0766. The European Central Bank also meets in the final month of 2015, when liquidity is traditionally low, after President Mario Draghi signaled policy makers would consider additional stimulus.