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China's GDP Growth Stayed at +6.9% in 2Q17, On Track to Reach 2017 Target Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Mon Jul 17 17 00:22 ET

China's macroeconomic data for 2Q17 surprised to the upside. Released earlier in Asia session, China's GDP expanded +6.9% y/y in 2Q17, same pace as the prior quarter but above consensus of +6.8%. Economic activities in June continued to improve. Industrial production growth accelerated to +7.6% y/y in June, beating consensus of and May's +6.5%. Retail sales expanded +11% y/y in June, up from +10.7% a month ago. The market had anticipated mild deceleration to +10.6%. Fixed asset investment in urban areas grew +8.6% y/y in the first half of the year, same pace as in the first five months of the year. The government acknowledged that the country's economy continued to improve. It appears that the country's growth is on track to meet the government target of "around +6.5%". President Xi Jinping affirmed at the National Financial Work Conference over the weekend that the PBOC would play a stronger role in defending against risks, calling for more work on safeguarding the financial system and modernizing its regulatory framework. We expect the government would continue its tightening policy targeting specific assets.

Renminbi extended its recent strength against the US dollar after the releases. Onshore USDCNY fell to as low as 6.7644 at one point, only modestly higher than the 7-month low of 6.7598. The government has aggressively fixed the currency at 6.7562 against the greenback, down from 6.7774 on Friday. Today's fixing marks the lowest since November 2016.

While strong Chinese data has boosted renminbi against the US dollar, the diminished hopes of Fed funds rate hike, driven by soft macroeconomic data (esp. inflation), are the key reason for the relative weakness of the US dollar of late. Headline CPI in the US slowed to 1.6% y/y in June, from +1.9% a month ago. The market had anticipated a milder deceleration to +1.7%. core CPI stayed unchanged at +1.7% for the month. According to CME's 30-day Fed funds futures, bets for a +25 bps rate hike in September shrank to single-digit 8.2% today.

Central bank news is going to dominate the market for the week ahead. Of most attention is the ECB meeting on Thursday. President Mario Draghi would likely add more hawkish flavor in the meeting statement. Yet, it remains a 50-50 chance over whether the policymakers would decide to drop the forward guidance on QE (e.g.: the ECB is ready to extend size and/or duration of the current bond purchases of 60B euro/ month). Ahead of it, the central bank would release the quarterly Bank Lending Survey on Tuesday. The RBA minutes would be released on Tuesday. Recall that the market dumped Aussie instantly after the July meeting as the central bank failed to deliver a more hawkish monetary policy stance. However, the weakness was short-lived and Aussie jumped last week on strong iron ore prices. the upbeat Chinese dataflow should also give Aussie a boost as China is the world's biggest consumer of iron ore and the largest importer of Australia's iron ores. BOJ would be meeting on Thursday (Japan time). On July 7, BOJ offered to buy an unlimited amount of JGBs, an action to cap the country's interest rates which have been sent higher but the selloff of the world's bond markets.

Commitments of Traders:

With the exception of natural gas, speculators were bullish over the energy complex in the week ended July 11. Net LENGTH for crude oil futures increased +16 978 contracts from a week ago to 358 025. NET LENGTH of heating oil added +3 175 contracts to 6 950 while net LENGTH for gasoline rose +7 265 contracts to 49 607. Net SHORT for natural gas increased +13 838 contracts to 33 878 for the week.

Speculators were bearish over the precious metal complex last week. Net LENGTH for gold plunged -33 539 contracts to 60 260, while that for silver futures fell -12 270 contracts to 14 005. For PGMs, net LENGTH for platinum dropped -2 813 contracts to 5 397 while that for palladium slipped -1 780 contracts to 18 654.


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