In July, China's industrial production experienced a significant slowdown, indicating a sluggish pace of economic activity.

China's economy is experiencing a slowdown, with industrial production and retail sales showing weaker performance.

Highlights

• The focus shifted from the Reserve Bank of Australia (RBA) and Australian wage growth figures to the Chinese economy.
• Investors who were expecting a slight improvement in economic conditions will be disappointed.
• In July, China's industrial production increased by 3.7% compared to the same period last year, a decline from the 4.4% growth seen in June. Retail sales in China also saw a modest rise of only 2.5%.

This morning, the focus of market attention was initially on the Reserve Bank of Australia (RBA) meeting minutes and Australian wage growth figures. However, the primary focus quickly shifted to economic indicators from China, as investors grappled with a deteriorating macroeconomic environment.

The figures from China, including fixed asset investment, industrial production, retail sales, and unemployment, disappointed investors who were hoping for positive signs of a shift in direction.

In July, China's industrial production increased by 3.7% year-over-year, compared to 4.4% in June. Retail sales saw a modest rise of 2.5% in July, down from 3.1% in June. These figures fell short of economists' forecasts of 4.5% and 4.8% growth, respectively.

Other indicators also showed a bearish trend. The unemployment rate in China increased from 5.2% to 5.3%, and fixed asset investments rose by 3.4%, lower than the 3.8% growth seen in June. Economists had anticipated a 3.8% increase in fixed asset investments.

These latest figures align with recent economic indicators, such as trade data and the Caixin Manufacturing PMI, which have highlighted the need for stimulus measures from Beijing to support the economy.

AUD/USD Reaction to the China Stats

The AUD/USD currency pair experienced fluctuations in response to the economic indicators from China. Prior to the release of the numbers, the pair fell to an early low of $0.64629 before rebounding to a pre-stat high of $0.64942. The decline in the Australian Dollar was influenced by Australian wage growth figures and the RBA meeting minutes.

Following the release of the Chinese economic indicators, the AUD/USD dropped from $0.64888 to a post-stat low of $0.64810.

As of this morning, the AUD/USD was down 0.09% and trading at $0.64812.

Next Up

The upcoming US retail sales figures are expected to have a notable impact on the market, with economists forecasting a 0.4% increase in July compared to a 0.2% increase in June.

If retail sales exceed expectations and show a significant jump, there is a possibility that the Federal Reserve may consider raising interest rates to curb spending and address the potential impact on consumer price inflation.

Strong US retail sales would also highlight further divergence between the euro area and the US economies, as well as their respective central bank policy outlooks.

In contrast, the NY Empire State Manufacturing Index, which measures business conditions in the New York manufacturing sector, is unlikely to have a significant influence on the Federal Reserve. This is because the manufacturing sector accounts for less than 30% of the overall US economy.