Positive Chinese & UK Data: Short-Term Outlook

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In today’s article, we will take a look at the outcomes of the Chinese Data in addition to a look at the UK inflation data, what does it mean for both central banks (PBoC & BOE) and the effect on the Chinese Yuan and the British Pound of the short term.

Positive Chinese Data

Contrary to the market expectations, the Chinese data came in much better than expected, including the industrial production, fixed asset investment and most importantly the retail sales. The entire data suggests that the recent devaluation of the Chinese Yuan and the PBoC policy is finally showing a light at the end of the tunnel.

Outcomes

Indicator

Actual

Forecast

Prior

Industrial Production

6.2%

6.1%

6.1%

Fixed Asset Investment

8.3%

8.3%

8.3%

Retail Sales

10.8%

10.2%

10.0%

The most important outcome in today’s figures was the retail sales, which posted the biggest increase this year, rising by 10.8% after a notable slowing down throughout the year, which reached a growth rate of 10.0% only. Moreover, the Industrial Production unexpectedly advanced to the highest level in three months, rising to 6.2% after two months of a stabilization around 6.1%.

Chinese Data Orbex

CNH Devaluation

Since the devaluation of the Chinese Yuan is showing some positive effect on the Chinese data, there is a high possibility for further declines ahead. USDCNH is stabilizing around 6.9 for the last few weeks. It should not be surprising if the pair continues to rise further and its seems that 7.0 is not far away. Yet, there will be a political implication of such move, as the US will not be pleased with such level. Therefore, volatility is likely to rise in the coming weeks. Yet, it seems that USDCNH is on a one-way bet trend.

UK Inflation Advanced Further

Another positive data came in from the UK earlier today, which pushed GBP pairs higher almost across the board. The inflation data showed a possible pick up in both inflation and core inflation after excluding the energy products. Such news would keep the Bank of England away from expanding its current asset purchases facility. Yet, traders need to keep an eye on the jobs report later today, as wages needs to pick up further to give us a brighter outlook for inflation and growth.

Outcomes

Indicator

Actual

Forecast

Prior

CPI MoM

0.2%

0.2%

0.1%

CPI YoY

1.2%

1.1%

0.9%

Core CPI MoM

0.2%

0.1%

0.0%

Core CPI YoY

1.4%

1.3%

1.2%

The YoY CPI advanced again to the highest level since October of 2014 rising to 1.2% up from 0.9%, despite the fact that the estimates were to rise slightly to 1.3%only. Moreover, the Core CPI also advanced to the highest level since September.

UK CPI Orbex

GBP Strength Despite Brexit

Despite the Brexit event, the British Pound managed to rise for the past few weeks; this is also despite all the talks of a hard Brexit. Yet, one of the reasons of the GBP strength is the ongoing appeal of the government at the higher court in the UK. So far, the house of representatives has more chances of winning. In return, the Brexit negotiations will be very slow and will take longer time than estimated. Such event would delay the negative impact on the UK and GBP. As for today, GBPUSd spiked above 1.27 with signs of stabilization, which could be considered as a positive signal ahead of the BoE decision later this week.

 

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