The dollar rebounded on Thursday after the release of stronger Retail Sales data supported the case for a September rate hike, which had taken a back seat since the remnimbi’s devaluation at the start if the week.
Retail Sales in July rose by 0.6%, falling in line with expectations, and increasing on the previous -0.3% result.
Retail Sales Ex Autos increased by 0.4% – also as forecast – and was revised up in June to 0.4%.
Initial Jobless Claims rose more-than-expected to 274k when an increase to 270k had been estimated. Continuing Claims also increased, rising by 2273k when it had been expected to fall to 2245k. Despite the rise in claims investors took comfort from the 4-week moving average of Initial Claims which fell to 266k, the lowest reading for 15 years.
The dollar was also lifted by comments from the vice president of the Pboc who sought to calm markets about the recent fall in the remnimbi, saying there was no basis for further devaluation and calling rumours that China wanted to devalue the currency by 10% “nonsense”.
Many analysts remained cynical, expecting more devaluations from the central bank, with Hantec’s Richard Perry saying, he took the comments “with a pinch of salt.”
The Pboc also actually continued devaluing their currency on Thursday after fixing a lower rate, albeit at not as much as on Tuesday and Wednesday.
The euro lost ground and called a halt to its rocketing rally on Thursday after the release of the ECB July meeting minutes showed a doveish retrenchment in board members’ attitudes.
Although there was no change in the headline summary that “risks remain to the downside” concerns about continued low inflation, the impact of a slow-down in China and the impact on struggling emerging market economies of a rate hike in the U.S were highlighted.
Analysts concluded the ECB was ready to unleash more QE if necessary, although circumstances had not yet arisen where that was necessary.
The minute said inflation was “unusually low” and China could have a “bigger than expected adverse impact.” It further said the gradual euro-zone recovery had become disappointing and that covered bond purchases under its QE programme were becoming challenging due to funds wanting to keep hold of them during the current riskier climate.
On the hard data front German CPI came out as expected, showing a 0.2% rise yoy in July, and 0.3% mom for harmonised CPI.
Sterling weakened marginally on Thursday as traders continued to digest the disappointing average earnings data from the previous day, which had shown a 4 basis point undershoot below expectations of a rise of 2.8%.
This had poured cold water of early rate hike expectations and the bravura caused by the unexpected rise in Weekly Earnings including Bonus in June. Workers salaries are one of the most significant data points watched by BOE officials in trying to gauge the right time to raise interst rates.
On Friday Construction Output data is forecast to show a 3.3% rise yoy in June, from 3.0% a year ago and 2.0% mom, up from -0.3% in May.
Japan’s Industrial output rose more than initially estimated in June, final data from the Ministry of Economy Trade and Industry revealed. Nevertheless concerns over the increasing likelihood of a slowdown in the nation’s economy in the three months through June persist. Total production increased 1.1% on month in June compared to 0.8% rise the preliminary result showed. In May industrial output declined 2.1% as weak exports hurt production in recent months. Annualized production increased 2.3% in June, up from a 2.0% gain in the previous month.
In a separate report core machinery orders dropped steeply in June, suggesting a sharp decline in business investment over the month, further reinforcing the widely held belief that the Japanese economy shrank in the last quarter. Orders excluding ships and utility items plummeted 7.9% on month in June, compared with the 5.3% decrease forecast. The sharp fall in June followed the 0.6% increase in orders in the preceding month and 3.8% rise in April.
There is a risk that overseas slowdown could hit exports harder, prompting Japanese firms to put off investment plans. But so far I don’t see that happening,” said Hidenobu Tokuda, senior economist at the Mizuho Research Institute.