Insights 
VT 
China’s recent economic data has not met expectations, presenting various challenges. Retail sales in July increased by 3.7% year-on-year, falling short of the projected 4.6%. Industrial production saw a rise of 5.7% year-on-year, below the expected 5.9%.
Growth Challenges
Factory output and retail sales for July also did not meet forecasts, pointing to growth challenges within the economy. Moreover, home prices experienced ongoing declines on both a monthly and yearly basis in July.
A spokesperson from the National Bureau of Statistics noted that China’s exports are under pressure due to external uncertainties. Additionally, some companies are encountering increased difficulties.
Tariffs are among the factors contributing to these pressures on China’s exports. The economic landscape appears affected by these external challenges.
Looking back, we remember that period when the July data missed forecasts, confirming the underlying weakness we were worried about. The slowdown in retail sales and industrial production, along with falling home prices, was a clear signal of the challenges ahead. Those figures marked a turning point, showing that external pressures and tariffs were having a real impact on the economy.
Current Market Sentiment
Fast forward to today, and we see the results of that long-term trend. The latest data from July 2025 showed China’s manufacturing PMI has now been below the 50-point mark for three consecutive months, settling at 48.9. In response to slowing growth, which is now forecast by the IMF to be just 4.1% for 2025, the People’s Bank of China has recently cut its one-year loan prime rate again.
This continued weakness keeps us bearish on the Chinese yuan. The USD/CNH currency pair has been testing the 7.45 level, and we believe it has room to move higher. Traders should consider buying out-of-the-money call options on USD/CNH to position for further yuan depreciation in the coming weeks.
The slowdown is also a major headwind for industrial commodities. Copper prices, a key barometer for global manufacturing, have recently slipped below $7,800 per tonne, a level not seen in over a year. Buying put options on commodity-focused ETFs or on major miners with significant China sales is a straightforward trade.
We are also cautious on equity indices with high exposure to Chinese demand. Hong Kong’s Hang Seng index continues to underperform, and we are also seeing weakness in European markets, particularly the German DAX. We think selling futures on these indices or buying put spreads offers a good risk-reward profile for the near term.
The rising uncertainty makes a case for higher market volatility. The VIX index has been slowly creeping up from its lows, recently touching 19.5 as traders begin to price in more risk. We suggest buying VIX call options as a direct play on increasing market fear.
