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RedFX Snap: Chinese headlines shock - what's ahead this week?

On a Monday morning which sees parts of Europe on holiday, markets are hit with some terrible Chinese data alongside more talk of a prolonged global slowdown and more many developed economies verging on recession. Over the weekend, a survey by Bloomberg showed that economists think that a eurozone recession is now more likely than not. 

 

Chinese Data: To bad to be ignored ..

A slew of data from the second-largest economy missed market forecasts on Monday, forcing the central bank to unexpectedly cut key lending rates in a bid to shore up demand. Reuters say: “Hobbled by Beijing's zero-COVID policy and a property-sector slowdown, industrial output growth missed estimates, while retail sales grew (2.7%) but below the 3.1% pace seen in June, and well below the 5% expectation.

The move to lower borrowing costs failed to give any meaningful lift to Chinese stocks and dragged down broader sentiment for Asian equities. Economists now see little chance of China achieving 5-5.5% growth in the second half.”

 

UK: Recessionary conditions with rising rates

And though recession risks are rising in U.K., this is unlikely to prevent the Bank of England from raising borrowing costs again by a bumper 50 basis points next month, a Reuters poll forecast, as inflation looks likely to push into double digits (Reuters reported on Monday that 30 of 51 polled economists expect the Bank of England to hike its policy rate by 50 basis points to 2.25% at the September policy meeting).

 

GBP had a rotten Friday and is lower in illiquid trading this morning – GBP/EUR lower to 1.1810

 

USD: Is the rally running out of steam?

After 7months of powering to multi-year highs against most major currencies, the USD has slowed down. Although still resting near its highs, sentiment has shifted somewhat, with Reuters stating: “Speculators decreased their net long U.S. dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.

The value of the net long dollar position was $12.97 billion in the week ended Aug. 9, compared with a net long of $17.27 billion the previous week.”

 

After a rush to buy USD on the back of the Ukrainian war and the rate increases from the Fed, the market now thinks the Fed will peak very early with its large rate increases, meaning that a pullback / slowdown will happen just as quickly.

EUR/USD at 1.0250 / GBP/USD at 1.2050 still indicate a strong USD, but the story isn’t over yet.

 

Ahead this week:

Tuesday: UK employment / AUD rate-meeting minutes / CAD inflation data

Weds: NZD rate announcement & Press Conf / EUR GDP / USA Retail Sales / USA Rate-meeting minutes

Thurs: AUD employment / US 2nd tier employment

Fri: CAD Retail Sales

 

 

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