Summary:

  • JPY and CHF are among the weakest currencies in G10
  • Japanese GDP beats forecasts
  • Chinese data lower across the board
  • New Zealand retail sales comes in above a forecast, PMI misses an estimation

The Japanese yen along with the Swiss franc are by far among the poorest currencies in G10 basket which could be a result of ebbing geopolitical risks related to North Korea. What’s more gold prices are losing 0.6% as well, hence it might confirm at least a temporary end of a risk-off mode.

On the other hand, the JPY has shrugged off a better than expected GDP release which came in at 1% qoq against a forecast at 0.6% qoq (seasonally adjusted). In terms of a yearly basis there was even a more astounding figure 4% whereas just 2.5% was anticipated. Nonetheless, despite so decent figures the JPY is lower in the morning while the NIKKEI (JAP225 on xStation5) is edging down as much as 1%. A worse performance of the currency could stem from the fact that GDP deflator stayed much below 0% and even as it turned out to beat a projection (-0.4% qoq vs. -0.5% forecast), it suggests quite tepid inflationary pressures ahead. Let us recall that GDP deflator is supposed to be the broadest inflation measure in an economy.

link do file download linkThe Japanese growth beat a forecast, GDP deflator – the broadest inflation gauge – remained in a negative territory though. Source: Bloomberg

As far as the Chinese economy is concerned, there were three crucial prints which broadly missed their forecasts suggesting that economic growth could dial back to some extent going forward. Industrial output rose 6.4% from a year earlier in July, versus a median projection of 7.1% and June’s 7.6%. Retail sales expanded 10.4% from a year earlier, compared with a projection of 10.8% and 11% in June. Otherwise, fixed income investment in urban areas picked up 8.3% yoy in first seven months of the year missing a forecast at 8.6% yoy.

link do file download linkAll three readings from the Chinese economy turned out to be sub-par in July. Source: Bloomberg

By and large, broadly lower than estimated figures could suggest that the economy might lose some steam in a third quarter of 2017. Moreover, there is guesswork that the most relevant headwinds the economy faces this year are deleveraging and industrial capacity cuts which could have already begun kicking in. In the longer-run, it could carry more favorable prospects for the second-largest economy in the world, however the short-term could bring some disillusions. Having said that, equity investors appear to understand the Chinese authorities’ vision when it comes to a need to deleverage the economy as two major indices in Shanghai and Hong Kong are gaining 0.85% and 1% respectively.

Beside the above-mentioned data, there were two noteworthy readings from the New Zealand economy. At first, services PMI slipped from 58.6 to 56 in July which could have been a ramification of adverse weather and uncertainty surrounding the election in September. Nevertheless, retail sales in Q2 was much better than estimated coming in at 2% qoq against a projection at 0.7% qoq. Even as a second quarter’s release fairly easily managed to beat a forecast, it could struggle to do so going forward as we take a look at the services PMI reading foretelling a slowdown in retail sales in the oncoming third quarter.

link do file download linkNew Zealand’s retail sales came in above forecasts in Q2, however the sevices PMI bodes not well for the coming quarter. Source: Bloomberg

link do file download linkThe USDJPY is trying to come back above a broken trend line even as the headline GDP figure beat a forecast. Source: xStation5

The USDJPY is rebounding after the last week’s sell-off sparked by a geopolitical clash between the US and North Korea. If the price is able to settle in above the line, it could lead to a corrective move towards 111.