- Retail sales disappoint the dollar
- Eurozone output rose
- Inflation report stuns pound
- CAD moves lower
US retail sales have remained stagnant in April, disappointing estimates of a modest 0.2% rise. Once again, this is an absence of dollars saved from lower gas prices not being spent by consumers. Import prices were also 0.3% lower on the month; simply put the US is importing deflation as well as lot more goods. The outlook for consumers in Q2 is not strong.
Despite a run of strong data this morning, EURUSD isn’t really taking advantage. European GDP this morning has gone the way of my gym sessions; let down by a weak core. German GDP grew at 0.3% in Q1, missing estimates of 0.5% and falling from 0.7% the quarter beforehand.
Job security in Germany has improved, wages are moving higher and ultra-low interest rates have made consumption a lot more attractive than saving for your average German. Exports are supported by a weak euro and within the Eurozone growth is also progressing. With all that going for it, a growth level of 0.3% is pretty dire.
France’s 0.6% growth in Q1 is the kind of number that Germany should be pumping out. Before we all start singing the ‘Marseillaise’ however, we have to bear in mind a couple of things. Firstly, growth was non-existent in Q4 so there is a fair amount of catching up to do. Secondly, we cannot extrapolate a trend out of one data point and lastly, with oil prices continuing to recover, we must remember that this could all come to an end quickly.
Italian GDP rose 0.3%, Greece slipped back into negative territory – embarrassing for the Syriza government – meaning overall output in the Eurozone rose by 0.4%.
Sterling was initially higher this morning following a very strong UK jobs report. Employment in the UK is a new record of 73.5% with 202,000 people gaining jobs in the past 3 months.
We have long called real wage increases a “silver bullet” for the UK recovery. Real wage increases, which come from optimistic employers happy with business conditions, allow consumers to re-balance spending figures from credit uptake and promote growth in generalized output with a central bank more comfortable to normalize monetary policy.
The Bank of England’s Inflation Report took the air out of the pound, as growth estimates through the next 2 years were cut. Efforts to explain a lack of productivity remain poor and for all the bluster about higher wages, I still think it’s pretty clear that the Bank of England is unhappy being seen as the central bank that will raise interest rates first. The cuts to growth forecasts are fairly minor and I believe too that inflation will return once last year’s oil price falls are no longer a factor.
EUR-USD is higher this morning on the double whammy of weak US data and relatively strong growth in the Eurozone. The absence of any news from Greece, save a new recession, is also keeping the pair bid.
GBP-USD has been up and down through the European session and is close to its YTD highs. A break of 1.5750 would point the pair to 1.60 in short order.
USD-CAD is lower as the US retail sales number has further driven the pair below 1.2000, compounded by another 1% increase in crude prices. Longer-term, the Bank of Canada likes the loonie weaker.
AUD-USD has hit its highest level in two weeks this morning. Once again this is a story of high Australian yields, the belief that the Reserve Bank of Australia will not cut rates again anytime soon and that poor US retail number.
Have a great day.