Daily Market Digest: China inflation, UK industrial production

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China's economy Great Hall

Market Summary

  • China CPI eases in July, PPI continues to fall, but at a slower pace
  • Yen stays muted to BoJ officials’ comments on monetary policy assessment
  • Germany exports rise in June, recovering from May’s slump
  • German imports rise for the first time in four months
  • UK industrial output rises surprisingly in June
  • UK manufacturing production slides in June

Today’s Economic events

  • The UK, BRC retail sales monitor y/y 1.10% vs. -0.50% previously
  • Japan M2 money stock y/y 3.30% vs. 3.30%
  • Australia NAB business confidence 4 vs. 5 previously
  • China CPI y/y 1.80% vs. 1.80%
  • China PPI y/y -1.70% vs. -2.0%
  • Switzerland Unemployment rate 3.30% vs. 3.30%
  • German trade balance 21.7bn vs. 23.2bn
  • Japan preliminary machine tool orders y/y -19.60% vs. -19.90% previously
  • UK manufacturing production m/m -0.30% vs. 0.0%; industrial production m/m 0.10% vs. -0.10%
  • UK goods trade balance -12.4bn vs. -9.6bn

Coming Up

  • The UK, NIESR GDP estimate
  • US IBD/TIPP economic optimism
  • The US wholesale inventories

China consumer prices eases in July

Consumer price index in China eased marginally in July, rising to 1.80%, slower than June’s 1.90% as food prices jumped at a slower than expected pace. The 1.80% increase in CPI matched the median expectations.. China’s consumer prices continue to remain below the yearly target of 3.0%. On a month over month basis, consumer prices increased 0.20% offsetting the 0.10% declines in June marking the first increase in five months. Food inflation increased at a weaker pace of 3.30% in July, down from 4.60% while non-food inflation increased from 1.20% in June to 1.40% in July.

China Inflation YoY – 1.80%, July 2016
China Inflation YoY – 1.80%, July 2016

Julian Evans-Pritchard at Capital Economics notes, “Inflation is likely to edge up in the coming months, though not to a level high enough to become a major concern for Chinese policymakers, who will continue to focus on medium-term risks.”

China’s producer prices index data released by the National Bureau of Statistics showed that producer prices fell 1.70% compared to a year ago, but the pace of declines was lower than the 2.60% declines from June. China’s PPI continues to fall at a steady pace, now into the fourth year of declines. On a month over month basis, China’s PPI was seen higher, rising 0.20% from June.

The PBoC had earlier ruled out further stimulus or lowering the reserve ratio requirements, but instead said that the central bank would focus on more pressing issues such as credit risks and address structural imbalances.

German imports and exports recover in June

Demand for German made goods increased in June with exports reportedly rising 0.30% on a month over month basis, data from German statistics agency Destatis showed on Tuesday. The increase in exports come after May’s data showed that German exports fell 1.80% in May on a month over month basis. On an annualized basis, German exports were seen easing from May’s 1.60% to 1.20% in June. Exports to EU countries increased 2.30% on an annual basis, while exports outside the EU declined by a modest 0.40%. Exports of goods to countries outside the European Union (third countries) amounted to 44.1 billion euros in June 2016, while imports from those countries totalled 26.8 billion euros.

Germany Import/Export, June 2016
Germany Import/Export, June 2016

Imports also ticked higher for the first time in four months, rising 1.0% on a month over month basis following a flat reading in May. On an annualized basis, imports increased 0.30%, compared to 0.10% declines in May. Imports from EU member states increased 2.0% while imports from outside the EU fell sharply, down 3.20%.

In June 2016, Germany exported goods to the value of 62.7 billion euros to the Member States of the European Union (EU), while it imported goods to the value of 55.2 billion euros from those countries. Germany’s trade surplus jumped higher, to 24.9 billion euro in June, compared to May’s 23.9 billion a year ago. June’s trade surplus was higher than the forecast of 23 billion.

German export association, BGA said that the group was satisfied with the data, noting “In view of the uncertain and risky climate in the world economy, we are not unsatisfied with this result.” BGA head Anton Boerner said in a press release that the positive momentum in the first half of the year came from the UK but cautioned that exports could cool down following the Brexit vote. “Against this background, strong demand from the EU and the USA are having a further stabilizing effect on German foreign trade,” he said.

UK industrial production rises, trade deficit widens

Data from the UK’s Office for National Statistics (ONS) showed earlier today that industrial production grew unexpectedly in June, rising 0.10% on the month. The surprise increase in industrial output comes following a sharp 0.60% decline in May and beating estimates of a 0.10% decline. On an annual basis, UK’s industrial production increased 1.60% as expected, and up from 1.40% previously, with biggest gains coming from manufacturing.

Seasonally adjusted production and manufacturing, March 2014 to June 2016, UK
Seasonally adjusted production and manufacturing, March 2014 to June 2016, UK

However, manufacturing output was seen weaker, falling 0.30% on the month and slower from 0.60% decline in May. It was slightly more than the forecast of 0.60% in June. On a year over year basis, UK’s manufacturing production increased 0.90% but was slower compared to the 1.50% increase seen in May. Forecasts called for an annual increase in manufacturing by 1.30%.

In a separate report, trade data from the ONS showed that the UK’s visible trade deficit increased in June. The trade in goods showed a deficit of 12.4 billion GBP, higher than the 11.5 billion deficit seen in May. Trade with the EU showed that deficit increased to 8.3 billion, from 8 billion previously, while trade deficit with non-EU countries increased from 3.6 billion to 4.2 billion in June.

On a quarterly basis, industrial output increased 2.10%, marking the fastest rate of increase in April to June quarter. Samuel Tombs from Pantheon Macroeconomics said that the quarterly increase in industrial output “mainly reflected the 2.3% month-to-month jump in production in April.” The British pound was trading weaker today despite the data. Lee Hopley from EEF said, “Clearly, indicators of sentiment post referendum suggest that we’ve hit the high point for manufacturing this year.”

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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