China’s currency hit its highest level in more than a year as a rise in retail sales signalled that a recovery in the world’s second-biggest economy may be taking hold.
The renminbi strengthened as much as 0.5 per cent to Rmb6.7857 a US dollar in trading within mainland China on Tuesday, its firmest level since May last year. That coincided with official data that showed retail spending increased for the first time this year, by 0.5 per cent in August compared with a year ago.
“A tightening labour market and revival in consumer confidence suggests that the recovery in services activity has further to run,” noted Julian Evans-Pritchard, senior China economist at Capital Economics.
Ken Cheung, a strategist at Mizuho Bank, said the renminbi had also been boosted by hopes of improved relations between Beijing and Washington following signs of a deal on the future of popular Chinese app TikTok.
The positive Chinese data and optimism about a recovery also bolstered the US market ahead of Wall Street’s opening bell and a two day Federal Reserve meeting that begins on Tuesday.
Futures markets pointed to a gain for US stocks, with the S&P 500 tipped to rise 0.7 per cent and the Nasdaq 100 expected to gain 1 per cent. Tech companies Tesla, Apple and Zoom rose in pre-market trading, following volatility in the sector in recent weeks.
The dollar index, which compares the US currency against a basket of other major currencies, slipped 0.3 per cent ahead of the Fed meeting.
“We remain negative on the dollar, as [Fed chair Jay] Powell’s dovish message from Jackson Hole is likely to be reiterated at the FOMC meeting this week. Sequentially weaker US data this week should also fit into the weak dollar narrative,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co.
Analysts are not expecting the US central bank to make major policy changes, though will be closely watching its forecasts and this week’s US manufacturing and business outlook data.
In Europe, markets showed some buoyancy in morning trading on the China data and positive financial results from consumer groups, including clothing retailer H&M and grocer Ocado.
Europe’s Stoxx 600 index rose 0.8 per cent, the UK’s FTSE 100 climbed 1.1 per cent, and the German Dax added 0.4 per cent. Sterling also rose 0.6 per cent to trade at $1.2912.
But the region must contend with rising coronavirus infection numbers and economic data that indicate a mixed picture.
In Germany, investor sentiment about the future of the economy surged to its highest level for more than 20 years, substantially beating expectations, although respondents remained strongly negative about current conditions, the Zew survey of financial market experts revealed on Tuesday.
Meanwhile, the UK unemployment rate rose to 4.1 per cent in the three months to July. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said he expected payroll numbers to “fall much further in September” as the government’s support scheme winds down, and unemployment to peak at 8 per cent in the winter.
In the Asia-Pacific region, Japan’s Topix index closed down 0.6 per cent and Australia’s S&P/ASX 200 slipped 0.1 per cent. The CSI 300 index of Shanghai- and Shenzhen-listed shares reversed initial losses to rise 0.8 per cent, while Hong Kong’s Hang Seng index added 0.4 per cent.
In addition to the outcome of the Fed meeting, investors are looking ahead to decisions this week by central banks including the Bank of Japan and the Bank of England.