The pound sterling was pounded with a steep loss almost across the board today on weak retail sales data for February. Meanwhile, the Euro is showing remarkable resilience considering yesterday's news flow. Can ECB expectations really trump a fizzle of a summit this weekend and Portugal in the bailout queue?
GBP pounded
The pound suffered another setback today after a very weak retail sales report for February that saw ex Auto Fuel spending shrinking a full -1.0% after a strong January that saw pent-up demand from the most disruptive December weather in decades. While it would be best to wait for March and April data are coming to check the temperature on end consumption demand, the extremely poor confidence numbers coming out of the UK of late (the GfK number is close to 2-year lows and the Nationwide confidence number is at its lowest level in the nearly 7-year history of the survey). The weak pound also came despite the BoE’s Dale out today discussing why he voted for a 25-bp increase to rates and talking up inflation concerns, as the BoE has estimated that CPI could exceed 5% at times this year.
The pound suffered another setback today after a very weak retail sales report for February that saw ex Auto Fuel spending shrinking a full -1.0% after a strong January that saw pent-up demand from the most disruptive December weather in decades. While it would be best to wait for March and April data are coming to check the temperature on end consumption demand, the extremely poor confidence numbers coming out of the UK of late (the GfK number is close to 2-year lows and the Nationwide confidence number is at its lowest level in the nearly 7-year history of the survey). The weak pound also came despite the BoE’s Dale out today discussing why he voted for a 25-bp increase to rates and talking up inflation concerns, as the BoE has estimated that CPI could exceed 5% at times this year.
Chart: GBPUSD
Cable is diving steeply back into the range after the recent runup failed to maintain altitude, and now we’re back in the 1.60-1.63 range in which we’ve spent the better part of two months. For the USD to push the pair back through the key 1.6000 support and sustain below there, we’ll likely need a bout of risk aversion, easing in crude oil prices, and doubts on whether QE3 will be forthcoming after the end of June.
Cable is diving steeply back into the range after the recent runup failed to maintain altitude, and now we’re back in the 1.60-1.63 range in which we’ve spent the better part of two months. For the USD to push the pair back through the key 1.6000 support and sustain below there, we’ll likely need a bout of risk aversion, easing in crude oil prices, and doubts on whether QE3 will be forthcoming after the end of June.
Market brushing off Euro-worries for the moment?
The power of ECB expectations to hold sway over other important developments in Europe is remarkable (namely, yesterday’s developments, which included the news that this weekend’s EU summit will result in no new major accomplishment and will look to push key decisions on the EFSF all the way to June and the news that Portugal’s prime minister has resigned after his government’s budget failed to pass a parliamentary vote.) From this morning’s action, in which we have seen a snapback rally in EURUSD and EURGBP and even EURCHF trying at the range highs, we can see that the market is still wowed with continued ECB rhetoric of late suggesting that the central bank is as serious as ever on moving on rates despite the hiccups in the sovereign debt crisis and Portugal on day-to-day bailout watch.
The power of ECB expectations to hold sway over other important developments in Europe is remarkable (namely, yesterday’s developments, which included the news that this weekend’s EU summit will result in no new major accomplishment and will look to push key decisions on the EFSF all the way to June and the news that Portugal’s prime minister has resigned after his government’s budget failed to pass a parliamentary vote.) From this morning’s action, in which we have seen a snapback rally in EURUSD and EURGBP and even EURCHF trying at the range highs, we can see that the market is still wowed with continued ECB rhetoric of late suggesting that the central bank is as serious as ever on moving on rates despite the hiccups in the sovereign debt crisis and Portugal on day-to-day bailout watch.
The next chance the ECB will have to follow up on its rhetoric will be at the April 7 ECB meeting in two weeks time. The consensus is looking for a 25-bp hike. We must also note that the signs of sovereign debt stress are still only really evident for the most peripheral countries of Greece, Ireland and Portugal, while countries closer to the core like Italy and Spain have seen their perceived default risk improve markedly from the levels of just two weeks ago.
US Data
The US Durable Goods Orders report for February was downright awful, especially in light of the already weak January number, and this adds up to the most significant correction in this indicator since it began declining with the general economic malaise that was gather in mid 2008. Still, it tends to be a volatile indicator, and only a third month of weakness this month would suggest a major alarm bell is ringing on this area of the economy, even if this data point raises quite a red flag. The gross level of durable goods orders, by the way, topped out in December of last year at approximately the same levels as the US first saw in mid-2006. The weekly initial claims data was reasonably strong, in-line with expectations and slightly below the last couple of weeks of data.
The US Durable Goods Orders report for February was downright awful, especially in light of the already weak January number, and this adds up to the most significant correction in this indicator since it began declining with the general economic malaise that was gather in mid 2008. Still, it tends to be a volatile indicator, and only a third month of weakness this month would suggest a major alarm bell is ringing on this area of the economy, even if this data point raises quite a red flag. The gross level of durable goods orders, by the way, topped out in December of last year at approximately the same levels as the US first saw in mid-2006. The weekly initial claims data was reasonably strong, in-line with expectations and slightly below the last couple of weeks of data.
Looking ahead
We’re not sure what took hold of market sentiment this morning, but we had a very strong move higher in equities and swoon in bonds ahead of the US data. This saw a bounceback in many of the JPY crosses and strength in the pro-cyclical currencies like the commodity currencies while the USD remained relatively weak. NZDUSD is above its 200-day moving average again after pausing at the level in recent days.
We’re not sure what took hold of market sentiment this morning, but we had a very strong move higher in equities and swoon in bonds ahead of the US data. This saw a bounceback in many of the JPY crosses and strength in the pro-cyclical currencies like the commodity currencies while the USD remained relatively weak. NZDUSD is above its 200-day moving average again after pausing at the level in recent days.
Next on the agenda is tomorrow’s German IFO data, which could finally disappoint slightly under the weight of the run-up in crude oil prices and the Japanese tsunami. Other than that, the focus will remain on the EU and how the politicians there try to spin what appears to be a disappointment summit in waiting. The SNB’s Danthine is also out speaking later today. The market has actually priced in 57 bps of policy tightening from the SNB in the coming year – a good 20 bps more than for the US Fed – is this realistic?
Economic Data Highlights
- China Mar. HSBC Flash Manufacturing PMI out at 52.5 vs. 51.7 in Feb.
- Germany Mar. preliminary PMI Manufacturing out at 60.1 vs. 62.0 expected and 62.7 in Feb.
- Germany Mar. preliminary PMI Services out at 60.1 vs. 58.4 expected and 58.6 in Feb.
- Sweden Feb. PPI out at 0.0% MoM and +0.3% YoY vs. +0.5%/+0.7% expected and +0.5% in Jan.
- EuroZone Mar. preliminary PMI Manufacturing out at 57.7 vs. 58.3 expected and 59.0 in Feb.
- EuroZone Mar. preliminary PMI Services out at 56.9 vs. 56.3 expected and 56.8 in Feb.
- UK Feb. Retail Sales out at -0.8% MoM and +1.3% YoY vs. -0.6%/+2.4% expected, respectively and vs. +5.1% YoY in Jan.
- UK Feb. Retail Sales ex Auto fuel out at -1.0% MoM and +1.2% YoY vs. -0.6%/+2.5% expected, respectively and vs. 5.0% YoY in Jan.
- US Feb. Durable Goods Orders out at -0.9% MoM and -0.6% ex Transportation vs. +1.2%/+2.0% expected, respectively
- US Feb. Nondefense, ex-Aircraft Capital Goods Orders out at -1.3% MoM vs. +4.3% expected
- US Weekly Jobless Claims out at 382k vs. 383k expected and 387k last week
- US Continuing Claims out at 3721k vs. 3700k expected and 3723k last week
Upcoming Economic Calendar Highlights (all times GMT)
- US Weekly Bloomberg Consumer Comfort Index (1345)
- Switzerland SNB’s Danthine to Speak (1700)
- US Fed’s Duke to Speak (2330)
- Japan Feb. National CPI (2330)
- Japan Feb. Corporate Service Price Index (2350)
- China Mar. MNI Business Condition Survey (0135)
- Japan Feb. Nationwide Department Store Sales (0530)
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