China’s second-quarter GDP was slightly lower than expected, but most other June indicators, such as retail sales, industrial production, and fixed assets, exceeded expectations. The report, according to TD Securities analysts, bodes positively for the yuan, with USD/CNY likely to consolidate below 6.50, but it will be less favorably received by CGBs after their recent rapid rally.
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China’s Q2 GDP increased by 7.9% YoY (TD 8.3%, comps 7.9%, last 18.3%), and despite only 1.3 percent QoQ, it still increased by a solid 12.7 percent YoY in H1 2021. According to the data, growth is on course to exceed the official objective of more than 6% for the year. While China’s activity is believed to have peaked, today’s data suggests that the slowdown will be moderate.”
“In June, industrial production climbed by 8.3% YoY (TD 8.3%, cons 7.9%, last 8.8%), owing to robust gains in the pharmaceutical industry. Retail sales increased by 12.1 percent (TD 10.5 percent, cons 10.8 percent, last 12.4 percent), with the 2y annualized rate (excluding COVID-19) showing a reasonable 5.3 percent increase, mainly by urban regions. On a two-year annualized basis, fixed investment climbed by 12.6 percent (cons 12 percent, previous 15.4 percent) and by a respectable 4.5 percent. Meanwhile, the unemployment rate remained unchanged at 5.0 percent in June, as expected “”Observations.”
“We believe the data favors the CNY, with USD/CNY likely to consolidate below 6.50, while Chinese bonds (CGBs) will be less pleased following their recent rapid gain.”
“The data is also positive for assets not located in China. The numbers released today will at the very least assuage fears that a greater slowdown in Chinese GDP could put more strain on the region’s recovery. However, we believe that a slowdown in China’s trade in the coming months will have a negative impact on Asia regional trade, with the region increasingly likely to experience increased domestic demand as economies reopen.”/n
