U.S Retail Sales and the Dollar in the Spotlight

With Super Thursday turning out to be somewhat of a wet Thursday, with the BoE providing the markets with little incentive to buy into a near-term rate hike, the  ECB’s economic bulletin also appeared to be carefully crafted, with the ECB taking a more optimistic view on the Eurozone economy, whilst highlighting downside risks persisting and more importantly, going to great lengths to bring the message across that monetary policy is unlikely to change any time soon, with there being plenty of slack in the economy, attributing to weak wage growth and core inflation sitting well below the ECB’s objective.

We saw the markets accept the FOMC’s more hawkish than expected FOMC statement last week, with the Committee able to brush aside weak economic growth through the 1^st quarter, with what has become quite a common description of 1^st quarter weakness in U.S growth, ‘transitory’ being the FED’s chosen word over the last few years at least.

On the previous two occasions, the weakness was in fact transitory and the FED’s intended move towards monetary policy normalization has continued, though perhaps at a slower pace than had been projected in the previous 2-years.

With the 1^st quarter of this year also disappointing, the expectations of the FED are that household spending will continue to be the key driver for growth, which raises the stakes on this afternoon’s April retail sales figures. The markets have taken the bait, but will need some convincing that the economy is on the right path, following last week’s mixed private sector PMI figures.

Weak earnings results from Macy’s has added to the market fears of bad start to the 2^nd quarter, with April’s retail sales considered to be the barometer for 2^nd quarter growth and whether the Atlanta FED’s GDPNow Tracker will be close or no cigar.

If the markets were looking for other stats to consider, April’s inflation numbers will also be of interest, assuming that retail sales rebound in April, with any uptick in inflation likely to add to the 90% probability of a June rate hike and quite possibly bring forward the market’s expected timing of the FED beginning to sell-down its balance sheet.

Unsurprisingly, the Dollar struggled through the Asian session, with the markets playing it safe ahead of today’s stats, the Dollar Spot Index falling to an intraday low of 99.553.

With no material stats across the pond, the pound will likely struggle through to the U.S stats this afternoon, the fall to sub-$1.29 levels likely to remain until economic indicators begin to suggest that the BoE will need to make a move sooner rather than later. Downwardly revised growth figures for the current year certainly don’t put too much pressure on the BoE for now, particularly with more weakness in domestic consumption forecasted for the remainder of the year.

Stats out of Europe are on the heavier side, the headline stat for the day being 1^st quarter, prelim GDP figures out of Germany. Germany has continued to perform, but with the ECB’s sentiment towards inflation, 1^st quarter figures failed to drive the EUR despite Germany’s economy growing by 0.6%, quarter-on-quarter, up from the previous quarter’s 0.4%. Consumer prices were flat in April, according to finalized figures released ahead of the European session, inflation figures ultimately weighing on the EUR as one would expect following the messaging from Draghi and the team.

At the time of the report, the EUR was up 0.02% at $1.08627, coming off an intraday high of $1.0874, with the Dollar Spot Index recovering from intraday losses through the Asian session, up 0.04% at 99.663, whilst likely to be range bound ahead of today’s retail sales and consumer price figures, plenty riding on the stats, market sentiment towards the U.S economy and the probability of a rate hike next month in particular.