USD/CNH Off Highs On Better August Activity Data

China activity data for August mostly surprised on the upside. The most notably beat was from retail sales, +5.4% y/y, versus +3.3% y/y expected. Gains by categories were fairly broad based, although as a number of sell-side analysts have highlighted, holiday related spending looks softer in September, so it remains to be seen if this improved retail spending trend continues. The next services PMIs will be watched closely from this standpoint.

• IP growth was also better than expected at 4.2% y/y (3.8% y/y forecast). Details were more mixed, with automobiles and utilities the positives, but softness elsewhere.
• FAI was 5.8% y/y, also above 5.5% expected, although property investment remains weak at -7.4% y/y (versus -7.0% forecast). This hints at infrastructure investment/fiscal spending gaining some traction.
• The jobless rate also edged down to 5.3%, versus 5.4% expected.
• These outcomes should help slow the fall in China activity surprise indices, and probably help pause the downside revisions to the 2022 growth outlook. It's unlikely to see upgrades though, we arguably need to see further upside surprises for this to happen.
• The market reaction has been to take USD/CNH off its session highs. We were last at 7.0235 (versus an earlier high around 7.0350).