• Equity markets are down today after weak data from China
  • AUD outperforms after a stellar NFP report
  • USD looking good, awaits inflation data

Just when it looked as if the China was on a strong foot again this data package has arrived. Industrial output growth slipped to 6% in August from already disappointing 6.4% in July, retail sales was down from 10.4% to 10.1% and urban investments increased by 7.8%, 0.5pp lower than in July – in all cases these were major misses and we need to stress one thing here: it’s not a big deal to see annual growth in output down 0.6pp from the consensus, especially at a level of 6% but in China the data looks always so smooth that there is a belief the statistical office undertakes efforts to present it that way. Therefore readings like this could make traders suspicious that perhaps actual situation was even worse.   

Let us recall that there is 5-year congress of the Communist Party at the end of October where presidency of Xi will be extended for another (5 year) term. There were expectations that the Chinese wanted to boost the economy ahead of the congress and we even reported that banks used 80% of annual credit quota in the first half of the year. Could the data be a signal that the economy has run out of fuel? If that’s the case, what’s going to happen after the congress? Well these are just speculations for now, this is just a single month but keep in mind that some markets, especially industrial commodities, have rallied a lot and there were warnings that this could be mostly speculation. 

It’s not surprising to see the markets in Asia in the red. Nikkei (JAP225 on xStation platform) is down 0.3%, Hong Kong (HKComp) 0.5% and the Chinese Hang Seng CE (CHNComp) as much as 0.9%. 

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 CHNComp shows weakness around an upper limit of upwards channel. That could spell a correction on this market. Source: xStation5

Under such circumstances one would assume that the Aussie dollar could struggle, so how is it possible for it to be the best G10 performer? The answer is data from Australia. The labour market report for August showed a stunning rise in employment of 54.2k, following a solid reading in July as well (29.3k after an upward revision). The unemployment rate remained unchanged at 5.6% but it was because the participation rate inched up to 65.3%. What’s important, employment gains were mostly in the full-time segment. This could be an encouraging sign for the RBA. 

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AUDUSD is under pressure despite a stellar report from the labour market. Source: xStation5

However, the data was only a temporary relied for AUDUSD which is under pressure from recovering USD and the Chinese data. On the chart we can see that the pair keeps sliding more and more below the key 0.8050 mark. Inflation data from the US could be decisive – a strong reading could send the pair towards the lower limit of recent consolidation.