China: Better than expected economic releases – BBH

China's official economic metrics have held up better than many had expected so far this year, and surely the yuan's 4.2% appreciation against the dollar is even more surprising, according to Marc Chandler, Global Head of Currency Strategy at BBH.  

Key Quotes

“Still, it appears that perhaps like the eurozone, the Chinese economy has lost some momentum at the start of Q3.  Both retail sales and industrial output is expected to slow slightly from the pace reported in June.  Aggregate financing is expected to have slowed considerably in July, but caution is advised.   Lending typically (without fail since 2002) slows in July from June.   Many suspect that efforts are being made to avoid turbulence ahead of the Party Congress in two months.”

“In conclusion, the macroeconomic data on tap are unlikely to sway views on the state of the economies or the trajectory of monetary policy.  Without renewed widening of the interest rate differentials, the dollar may struggle to sustain traction, even against sterling.  The price action of the Swiss franc may suggest that participants are beginning to see the rhetorical barbs as part of the US declaratory policy, while the operational policy is a different thing.  It has held back from its most strident stances (citing China as a currency manipulator, pulling out of NAFTA, NATO as obsolete, steel tariffs on national security grounds, etc.).   Still, the US has reportedly signaled new measures directed toward China (intellectual property rights seems to have superseded steel and aluminum as the focus) will be announced as early as August 14.”