The Chinese economy throttled back in April, as the data of industrial production and retail sales showed on Monday. Both sectors underperformed and fell short of estimates. However, an infrastructure plan, which is aimed to uplift the economy has brought positive sentiments to the market. Yet, the country has taken a step back to boost the consumption and focus on the investment-led growth model, with the government ready to pour additional 78 billion Dollars in its development. The news spurred buoyancy on the commodity market, in the Chinese construction and infrastructure sector, as well as in the other commodity-led currencies such as the Russian Rouble and the Australian Dollar. The Russian Rouble kicked off the week gaining 1%, as the Australian Dollar added 0.45%. The backlog of the macroeconomic indicators from the forecasts was offset by the positive expectations from the government support for the economy, the ShComp stock index added 0.22%, continuing the correction started on Friday.
The commodity currencies were also inspired by the decision of Saudi Arabia and Russia to extend the production cuts for another six months. This was noted in the official statements of both countries. A new wave of optimism about the market rebalance dragged the prices upward, both Oil benchmarks added more than 2.5%. Considering the latest data about the US Oil reserves indicating a steady decline, the only headwind left was the “leftover” of the Oil bears at $50, $52, and a monthly high. An additional upward impulse is expected from the API update on Tuesday and EIA data, which releases is scheduled for Wednesday. The Oil longs are recommended only after significant corrections.
The US Dollar fails to maintain risk-on vibe due to lacklustre figures of the retail sales and consumer inflation in the US, published last Friday. The growth pace did not meet the expectations, and April’s growth was 0.4% with a forecast of 0.6%, the core inflation was 1.9% with a forecast of 2.0% (FED’s target level). Gloomy figures of the retail sector were swept under a rug with a beam of optimism from the consumer confidence data from the University of Michigan. The core reading was at 97.7 points and thus almost on target.
The odds of a July hike decreased slightly from 83.1% to 78.5%, as traders pared bets on FED’s move due to the failure of core benchmarks. It’s unclear whether Friday’s data will make significant adjustments in the FED’s intentions, but the greenbacks composure on Monday suggests that the market disappointment is likely to be short-lived. Recent comments from Patrick Harker, who takes part in shaping the FED’s policy, also propped up the US currency. Speaking at the Drexel University, he suggested that the economy could be ready for two or more rate increases this year, as the labour market is in excellent shape, and inflation fluctuates near the target level. “Overall, the situation looks favourable,” he said.