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With 3 back to back months of negative retail sales growth, we are looking at a very weak third quarter GDP that will show minimal improvement in growth. The Empire State Manufacturing index rose to 7.39 from 2.29 in July but this uptick in NY manufacturing conditions will be lost amongst the weak retail sales number.
While this morning's U.S. consumer spending report hardens the case for QE3, it does not change our view that nothing new will come from Bernanke on Tuesday and Wednesday, when he delivers his semiannual testimony.
This is a very important week in the financial market because we finally have an opportunity to get into the minds of the Federal Reserve. With everyone from economists to investors and even central bankers divided on whether a third round of stimulus or QE3 will become a reality, the heavy U.S. economic calendar and Ben Bernanke's semi-annual testimony could reshape the market's expectations and with it, the trend of the U.S. dollar. This is a week where volatility in the foreign exchange market could soar if there are any surprises in U.S. data or in Bernanke's testimony.
Read more: http://www.businessinsider.com/bernanke-to-testify-before-congress-2012-7#ixzz20bVZebYj
Overall this was the slowest pace of expansion in three years indicating a clear slowdown in growth in world's second biggest economy. However, China Daily reported that officials expect growth to rebound to 8% in Q3 and 8.3% in Q4 reaching the key 8% target by end of the year.
Investors now expect a soft landing for the Chinese economy with PBOC anticipated to lower rates 2 or 3 times before the end of the year in order to stimulate demand, yet with Europe - China's biggest export market - showing few signs of improvement the prospect of further contraction in Chinese rate of growth remains a very real possibility.
Boris Schlossberg
Managing Director of FX Strategy
http://uk.reuters.com/article/2012/07/13/uk-italy-ratings-idUKBRE86C00K20120713
