Better US consumption cautious Fed

Away from China, solid retail sales mean that Q2 real consumption in the US is now tracking 3.1%, with momentum continuing into Q3. Meanwhile, the Fed has been careful not to reveal its intentions regarding a September hike (see Federal Reserve Commentary: Retaining optionality), but recent developments should heighten concern about global growth weakness and disinflationary pressures. 

The chances of a September hike (still our call) have dropped, given the weakness in commodity prices and EM economies, continued USD strength, and the risk that yuan liberalisation could spark market volatility and tighten financial conditions in the US, says Barclays. Nevertheless, a China "hard landing" has been on the Fed's radar for some time. Given the long lags from changes in the USD to inflation and activity, the risk of further CNY depreciation is seen as mainly a story about the pace of hikes than the start, adds Barclays.