Sat, 22nd July 2017

Anirudh Sethi Report


Latest Posts

China June Industrial Prdn. 7.6%y/y (expected 6.5%), Retail sales %y/y (10.6%) + more

China data for June 2017

Industrial Production 7.6% y/y for a huge beat
  • expected 6.5%, prior was 6.5%
  • For the m/m up 0.81%
Industrial production YTD 6.9% y/y  beat
  • expected 10.3%, prior was 10.3%
Fixed Assets (excluding rural) YTD 8.6% y/y, beat
  • expected 8.5%, prior was 8.6%
Retail Sales 11.0% y/y, big beat
  • expected 10.6%, prior was 10.7%
Retail Sales YTD 10.4% y/y, beat
  • expected is 10.3%, prior was 10.3%
From China’s National Bureau of Statistics:
  • June steel output at a record high
  • Real estate investment in China rose 8.5 percent in the first half of 2017 from the same period a year earlier, easing slightly from 8.8 percent growth in the first five months
  • New construction starts measured by floor area were up 10.6 percent in the first half of the year, compared with a 9.5 percent rise in the first five January-May
  • Property sales measured by floor area grew 16.1 percent in January-June from the same period a year earlier, up from 14.3 percent in the first five months of the year

CHINA Q2 GDP: 6.9% y/y (expected 6.8%)

April to June gross domestic product data from China

6.9% for a beat
  • expected 6.8%, Q1 6.9%
1.7% q/q (sa) in line
  • expected 1.7%, prior 1.3%
YTD GDP 6.9% y/y
  • expected 6.8%, prior 6.9%
Comments from China’s stats department after the data:
  • Economy continues steady, improving momentum in first half of 2017
  • H1 economic growth lays a solid foundation for achieving the full-year GDP target
  • Economy still faces uncertainties – international uncertainties, domestic structural problems

OIL-OPEC Secondary sources say compliance for members dropped to 92% in June

There are a few headlines about the place this morning on compliance rates

Basic gist is that ‘secondary sources’ data used by OPEC show cartel members are pumping more, with compliance with cuts for its members down to 92% in June (from 110% in May)
  • Note, news on this has been doing the rounds since last week, with various numbers bandied about (the compliance rate updated)
  • Last week compliance was being reported around 97%, so the 92% figure is a worsening
Note, secondary-sources data is from external agencies OPEC uses to assess compliance. OPEC uses two sets of figures to monitor output, those supplied by each country & the secondary sources

Data due from Asia today

On the economic data calendar today the highlight is China

But, from the top:
2230GMT – New Zealand services PMi for June
  • BNZ – BusinessNZ Performance of Services Index (PSI)
  • May was 58.8
Services PMIs are not generally as closely watched as manufacturing PMIs
 2301GMT – house price indications from the UK
  • Rightmove house prices (Rightmove report is on asking prices)
  • For July, June was -0.4% m/m and +1.8% y/y
0200GMT – China data for June and also China GDP for Q2
  • Industrial Production y/y expected is 6.5%, prior was 6.5%
  • Industrial production YTD y/y expected is 10.3%, prior was 10.3%
  • Fixed Assets (excluding rural) YTD y/y, expected is 8.5%, prior was 8.6%
  • Retail Sales y/y, expected is 10.6%, prior was 10.7%
  • Retail Sales YTD y/y, expected is 10.3%, prior was 10.3%
I’ll have a preview of these to come
Also, GDP for April – June:
  • For the y/y, expected 6.8%, Q1 was 6.9%
  • For q/q (sa) expected 1.7%, prior 1.3%
  • YTD GDP expected 6.8%, prior 6.9%

All Eyes on ECB

The focus shifts in the week ahead from Yellen’s testimony and disappointing data to the ECB meeting which is expected to result in a further modest adjustment in its risk assessment.  While the focus shifts, the pressure on the dollar will likely remain.  It fell to new lows for the year last week against the euro, sterling, Swedish krona, and the Canadian and Australian dollars, among the majors.   
Among the emerging market currencies, the dollar fell to new lows for the year against the central European currencies (forint, zloty, and koruna) as well as the Singapore dollar and Mexican peso, among the actively traded emerging markets.  The dollar recorded its lowest close for the year against the Chinese yuan ahead of the weekend.   
The markets have doubted the Fed’s commitment to raising interest rates since the start of the year.  Perhaps it reflected, in part, the disappointment after the dot plots had suggested four hikes in 2016, only one was delivered.  The markets were skeptical of the March hike until officials launched a full court press to convince it otherwise.   Officials needed less of a campaign about the June hike.  It is a possible third hike this year that the market is now skeptical  
On June 15, a day after the last FOMC meeting, the September Fed funds futures contract implied about an 18% chance of a hike, according to the CME.  It had fallen a little below 10% before the retail sales and CPI reports before the weekend.  There is now almost an 8% chance of a hike priced into the September futures contracts.  
The market is skeptical of a December move but less so than after the June hike.   A month ago, the market had discounted about a 41% chance of a hike.  The pricing implied a 47% chance before pre-weekend data, which spurred a reassessment that brought the odds down to almost 43%.