Weak US Consumer Sentiment Data Hints at Weak July Retail Sales Print
Risk appetite in equity markets eased on Monday after the release of disappointing data on the Chinese economy. Industrial production rose 6.4%, missing expectations of 7.8%. Fixed capital investments also grew at a slower pace than expected (10.3% versus 11.3% expected). Manufacturing in China is also one of the key barometers of global recovery. So, weaker-than-expected growth could be an early signal that either the global recovery is peaking, or expansion of manufacturing continues to be constrained by rising commodity prices, supply disruptions and bottlenecks. In addition, not only China has faced this problem during current phase of the business cycle.
The rise in retail sales in China was also a big negative surprise. In annual terms, it amounts to only 8.5%, which was significantly lower than the forecast of 11.5%. Oil prices weakened after release of the report, as did the AUD and NZD, which are also guided by consumption picture in China. However, the NZD is now being underpinned by expectations that the RBNZ's rate hike this week will also leave room for further policy tightening if price increases or the labor market continues to surprise.
Long positions in the dollar and pound rose, the latest CFTC data showed. Data for the week ending August 10 showed that speculators continued to build up their dollar longs. The aggregate long position on the dollar against the currencies of the G10 countries rose 3% from open interest.
Nevertheless, there was a pretty strong dollar sell-off on Friday. The index slipped from 93 to 92.5 points on Friday, amid very weak data from U. Michigan. According to the organization's report, consumer confidence in August fell from 81.2 to 70.2 points:
Weak data suggests that consumer momentum may have started to fade in July, which is likely to affect retail sales due tomorrow. The benchmark is expected to slow down by 0.2% on a monthly basis, a stronger negative surprise could lead to additional dollar sales, as in this case, the chances of the Fed's hawkish rhetoric should be noticeably reduced. This week the risks for the US dollar are shifted towards further easing:
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