The dollar index gained a quarter of a percent on Friday after a mixture of positive data and a lessening of China growth fears resurrected market speculation of a September rate hike.
Producer Prices showed a pick up in July, boding well for main inflation in the future when it is expected factory gates prices will get passed through to mainstream retail prices. PPI Ex Food, Energy and Trade, yoy rose by 0.9% from 0.7% a year ago when 0.7% had been expected. Month-on-month it rose 0.2% compared to 0.1% expected from 0.3% in June.
On Friday the Pboc set the reference rate 0.05% higher than the previous day’s close. There had been speculation Beijing was going to devalue the currency by 10% but Friday’s valuation appeared to dismiss those fears. The dollar gained as the move seemed to confirm China’s slow-down might not be as bad as feared.
Other data showed a rise in Industrial Production of 0.6% from 0.1% when a lesser 0.3% increase had been expected. Manufacturing Production in July rose 0.8% from -0.3% previously when a 0.4% rise had been forecast.
Michigan Confidence in August fell to 92.9 from 93.1 when it had been estimated to rise to 93.6. Consumer fears about jobs and a basis point rise in mortgage rates were blamed for the decline, although analysts pointed to robust spending as continuing to support a relatively positive outlook going forward.
The euro fell on Friday after a string of weak economic data dampened the previously optimistic outlook for the region.
Euro-zone GDP undershot forecasts: rising to 1.2% yoy in Q2 from a previous figure of 1.0% when expectations had been for a rise to 1.3%. Month-on-month it fell -0.6% in line with forecasts, from 0.0% previously. Qoq GDP slowed to 0.3% from 0.4% previously and the same estimated. GDP in all three of the euro-area’s major economies also faltered.
Euro-zone CPI came out at 0.2% yoy as expected, and -0.6% mom (from 0.0% in June). Core CPI increased by 1.0% in line with forecasts and the same as previously. The slow-down in the monthly figure was particularly low, and could raise concerns about deflation creeping back into the region.
The pound eased lower on Friday as fundamentals suggested support for sterling might be topping out. Construction Output data also failed to help provide any support after it missed expectations by a large margin, although on the positive side the previous month and year’s data was revised up.
A string of recent data releases and reports from the U.K suggest investors may have overestimated the strength of the recovery in the U.K and its impact on monetary policy. Recent employment data showed the number of jobless reaching 1.85m and average weekly earnings falling behind estimates.
The BOE had been expected to raise interest rates relatively soon – perhaps even towards the end of the year, however, since the poor data and China’s move to devalue its currency, these have been delayed until early 2016 at the very soonest.
The yen/dollar pairing continued in the upper end of its trading range on Friday with a strengthening of the yen cancelling out yesterday’s dollar gain. The yen was trading at 124.27 per dollar towards the end of the London session.
According to a Bloomberg report last week, Japan has experienced a surprisingly robust performance this year despite the economic uncertainty in Asia. Japan’s corporate latest round of quarterly earnings showed many on the country’s top businesses are enjoying: “higher than expected profit growth,” thanks to Tokyo’s economic policies.
In June Japan reported a rise of 3.9% in its GDP during the first quarter of 2015, outperforming an initial projection of 2.4%. It was also up from the 1.5% reported last year.
Notwithstanding, the nation’s economic performance has been underwhelming, the problems being due to a slowdown in exports to the US and China, and poor household consumption, some economists attribute to Japan’s dire fiscal position – with debt now standing at 246% of GDP – which could therefore affect future incomes. Companies and consumers may also doubt whether ‘ Abenomics’ is here to stay.
Going forward the markets eagerly await Japan’s Q2 GDP numbers due for release on Sunday.