Stimulus is taking effect: China’s economy is accelerating

A comprehensive set of Chinese statistics released earlier this morning exceeded expectations for GDP and industrial production, although retail sales and housing were somewhat disappointing.

Industrial production growth accelerated to 6.8% y/y in June, up from 5.8% a month earlier. This appears to be the first result of the trade agreements between the US and China in recent months and the adaptation of businesses after the April tariff shock.

Positive market sentiment is also supported by a nearly fourfold jump in yuan loans last month and an acceleration in M2 money supply growth to 8.3% y/y, the highest in 15 months. The latter two indicators point to the formation of a favourable environment, but it will take time before liquidity fully permeates the economy.

Retail sales are currently slowing to 4.8% year over year, and new home prices have been falling monthly for the past two years, continuing the reversal that began in late 2021.

The expansion of liquidity is contributing to the sale of the yuan, forming a smooth reversal for the coming weeks and months. The combination of reverse traction in the dollar and increased stimulus in China may form a bottom for USDCNH in the 7.15 area.

The FxPro Analyst Team