The Two Stories of China

19 October, 2016

The latest numbers from China make for comfortable reading, with growth of 6.7%, industrial production moderating to 6.1% and retail sales comfortably into double figures. Remember though that these numbers are not the centre of concern in China. It’s debt, the level, distribution and level of potential bad loans. Of course, one could have pointed this out last year, the year before and the year before that, but the economy continues to produce decent numbers, certainly in comparison to other major economies. USDCNY has been moving higher for most of the month, although this more down to authorities accommodating the firmer dollar, with the yuan still firmer against sterling, the euro and the yen during the month.

Sterling was the interesting mover yesterday. It was less to do with the slightly firmer than expectation inflation data, more to do with a currency that has been over-sold for some time finding a reason to reverse higher. The latest Brexit news, suggesting legal advice is erring towards the UK parliament having to ratify any final deal between the UK and EU, was seen as supportive for such a correction. Cable broke higher from the wedge pattern that had been forming over the past week, whilst EURGBP fell back below the 0.90 level. For today, there is labour market data at 08:30 GMT, with the Bank of Canada rate decision following later in the day. No change expected, with some residual hopes for a more dovish BoC, which if not seen, could lead to some modest short covering on the CAD.

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