Asia Retail Sales Trump Disappointing Industrial Production

Data released this morning from South Korea and Japan showed the global trade slowdown is well and truly making its presence felt. South Korean Industrial Production slumped 2.9% YoY, and Japan Preliminary Industrial Production fared even worse, collapsing by 4.7% YoY for August.

More confusing still, both countries recorded huge jumps in retail sales. South Korean Retail Sales leapt 3.9% YoY, and Japan retail Sales leapt 2.0% YoY and a mighty 4.8% MoM, its best reading since March 2014. In Japan’s case, the spending increase was broad-based across all sectors and will no doubt give a cheer in the Tokyo corridors of power.

The data perhaps implies that Asian consumers and businesses feel the worst of the trade war fallout is behind us, with the green shoots of a recovery on the horizon even as the knock-on effects of the trade dispute still make themselves felt in industrial production. Perhaps the region is taking a glass half full attitude to the upcoming trade talks and assuming some sort of breakthrough is imminent. With President Trump now fighting on an impeachment front as well as a trade front, that may not be such wishful thinking. I will reserve judgment for now, as one month’s positive indicators do not a recovery make.

China heads off on holiday tomorrow for a week’s celebrations of its 70th birthday. Official NBS Manufacturing and Non-Manufacturing PMI’s have just been released, Manufacturing slightly ahead at 49.8 and Non-Manufacturing slightly below at 53.7. In manufacturing’s case, the data was still a 5-month low, and the inability to recapture the expansionary 50.0 level will disappoint, but the overall effect of the data is more of a nil-all draw than a solid result either way. Ahead of the China holiday, the powers that be in Beijing will likely be contented with that outcome.

The Caixin Manufacturing PMI from China has just been released, jumping to 51.4 vs 50.2 expected. As an independent indicator from Markit, it will have more weight than the official data and will be a most welcomed surprise for Asia. It should support regional markets for today as the “green shoots” story follows South Korea and Japan retail sales.

Australian Private Sector Credit showed a 0.2% increase, MoM. An anaemic, but still positive result. It has taken on elevated importance with the RBA rate decision due tomorrow. The markets view is that the RBA will cut another 0.25% to a record low of 0.75% as Australia’s mom-mining economy remains mired in the doldrums. I suspect talks of a rate cut may be premature though, with the RBA preferring to keep its powder dry until after the trade talks in Washington D.C. in two weeks.

The feast of data from around the world continues throughout the week, bringing welcome relief from President Trump’s social media account and talk of impeachment. It culminates with Friday’s U.S. Non-Farm Payrolls with markets predicting a gain of 140,000 jobs.

The RBA aside, India also as a rate decision this week with the chances of a cut high after the government’s corporate tax cuts of a fortnight ago. With China on holiday for all of this week from tomorrow, volatility will probably be torpedoed across regional Asia however.


Asia is refusing to bite on the Trump threats to delist Chinese companies on U.S. exchanges that came out on Friday and saw Wall Street finish in the red. The Nikkei 225 is 0.5% lower following the industrial production data, but the South Korean Kospi, Shanghai Composite and Australian ASX 100 are all flat.

In China’s case, ahead of the 70th birthday celebrations tomorrow, “officialdom” is likely to ensure that Mainland indices finish the day flat at worst, come what may during the session. The Hang Seng is down 0.40% however, as weekend protests, and violence shows no signs of abating in the SAR.

Regional Asia will get a lift from the impressive Caixin PMI data, which should rapidly lift the early clouds.


Currency traders should probably have bought a good book to read today if Wall Street’s price action on Friday is anything to go by. The Euro tested and held support at 1.0925, but overall the Dollar Index finished precisely flat.

Amongst the G-10 currencies today, only the NZD has fallen slightly with the rest of the majors unchanged. Currency traders appear to prefer the arrival of Tier 1 data from the U.S. and Europe this week. The one week holiday in China from tomorrow will also suck the life out of currency volatility in the region this week.

The Caixin PMI outperformance this morning should give a mildly bullish tone to regional Asian currencies on the day.


Oil fell on Friday as traders digested the implications of a very rapid recovery in Saudi Arabia oil production. Brent crude fell 1.60% to $ 61.60 a barrel, and WTI fell 1.0% to $55.70 a barrel.

Asia has started the day on a positive note, reinforced by the impressive Caixan PMI print. The hope that China is recovering is supporting prices with Brent regaining $62.00 a barrel and WTI climbing back through $56.00 a barrel.

The positive tone should continue throughout the session, although we expect volatility in Asia to flatline from tomorrow as China begins its one-week holiday.


Gold fell 0.55% to $1496.50 an ounce on Friday with weekend risk hedging taking the edge of speculator selling. The positive China data has some gentle selling returning to the markets in Asia. Gold easing 0.25% to $1493.00 an ounce.

Overall, gold remains stuck in a wider $1480.00 to $1530.00 an ounce longer-term trading range. We will likely need a trade or some other geopolitical catalyst to break that for now. Like oil, volatility will suffer from tomorrow as China heads away on holiday.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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