China manufacturing, retail sales disappoint
The directionless US session overnight appears to be spilling into Asia today. Pre-weekend lethargy seems to be the theme with China’s slew of tier-1 data releases this morning unable to lift the malaise. It appears that US Industrial Production and Retail Sales due this evening, and the hope of developments on stimulus talks from Capitol Hill, are taking precedence over local data.
US yields continued to move higher overnight, with the bid to cover ratio for the 30-year bond auction relatively weak. The spill over into other markets was nondescript, though. The firming of yields was most noticeable in the long end of the curve. However, I suspect this was driven by the impending supply overnight and is not a precursor to a structural change in the curve. The Federal Reserve remains an uber dove, and we can be 100% sure that they will nip any significant rises in long-term yields, or any yields for that matter, in the bud.
China’s Industrial Production and Retail Sales both underperformed. Industrial Production YoY rose 4.80% (5.1% exp.), but Retail Sales missed badly, falling by 1.10% (0.10% exp.). China, having shown a consistent track of improvements since March, will probably be given a grace period this time around. Any fallout was reduced by the PBOC announcing that it will hold another Medium-Term Lending Facility (MLF) auction on Monday. The amount is undetermined but is likely to roll over the CNY400 Bio maturing Monday at the very least. The PBOC has been somewhat stingy with liquidity in 2020, conscious of creating even more bubbles in its economy. A low headline number could provoke profit-taking in Chinese equity markets as the new week starts.
US Retail Sales and Industrial Production are released this evening. The month-on-month data will garner the most attention, giving granularity as to whether the US recovery remains modestly on track, or whether Covid-19 is turning the hopes of the market from a V to a very fat U. Retail Sales are expected to rise by 1.90% MoM, with Industrial Production MoM expected to increase by 3.0%.