FX Update: Truly awful US consumption data - does the market care?
Very little action overnight, as markets feel like they are at an important inflection point here, with risk having rallied to important levels and the bulls wondering whether they dare take this bear squeeze higher or if yesterday was just another one day wonder that will quickly yield to the bear again. AUDUSD is tickling the top of the range. USDCAD has fallen to a key Fibonacci retracement area and just beyond recent lows. EURUSD is toying with key resistance in the 1.2150 area and USDJPY is caught in a no-man's land between 93 and 91. Meanwhile, the Dow Jones Industrial average continues its cat and mouse game with 10,000 and the S&P500 has yet to take out the important 1040 low or the critical 200-day moving average (now at 1108). Our risk models show improving risk conditions across the board yesterday, but those models still suggest that we are in "decelerating risk aversion" rather than improving risk appetite, an important distinction for the time being. This observation was all before the day's big release.....
US Advance Retail Sales
US Retail Sales saw a very ugly drop in May, with the sharpest drop in the ex Autos and ex Autos and Gas data since December of 2008 and March of 2009, respectively. It is very rare for this number to take this kind of drop. Prior to August 2008, (when the financial world began to come unhinged and we saw a brutal, unprecedented decline in consumption) in fact, there have only been four (!!) instances when the ex Autos number was at -1.1% or worse since the data series began in 1992. Of those four instances, two occurred in January and were preceded by strong holiday shopping numbers, and one was the month of 9/11, with the last being a mysterious single monthly drop in Feb. 1995. If we get another weak data point for the June data, we are talking about serious double dip potential for the US economy - this number is a true rarity. A fall in US consumption is a very rare thing indeed. This kind of data point is a real hard piece of evidence that the market needs to chew on and consider, not the kind of "general level of fear vs. hope" trade that has been driving markets for some time now. Let's see how the market takes us into the close.
US Retail Sales saw a very ugly drop in May, with the sharpest drop in the ex Autos and ex Autos and Gas data since December of 2008 and March of 2009, respectively. It is very rare for this number to take this kind of drop. Prior to August 2008, (when the financial world began to come unhinged and we saw a brutal, unprecedented decline in consumption) in fact, there have only been four (!!) instances when the ex Autos number was at -1.1% or worse since the data series began in 1992. Of those four instances, two occurred in January and were preceded by strong holiday shopping numbers, and one was the month of 9/11, with the last being a mysterious single monthly drop in Feb. 1995. If we get another weak data point for the June data, we are talking about serious double dip potential for the US economy - this number is a true rarity. A fall in US consumption is a very rare thing indeed. This kind of data point is a real hard piece of evidence that the market needs to chew on and consider, not the kind of "general level of fear vs. hope" trade that has been driving markets for some time now. Let's see how the market takes us into the close.
Chart: US Retail Sales ex Autos and Gas (data source: US Census Bureau)
We generally like to track the ex Autos and Gas number for the US retail sales, which amazingly shows that besides these two categories, Americans are spending more than ever until May of this year(data not adjusted for inflation, but there hasn't been much of that since 2008...
We generally like to track the ex Autos and Gas number for the US retail sales, which amazingly shows that besides these two categories, Americans are spending more than ever until May of this year(data not adjusted for inflation, but there hasn't been much of that since 2008...
Chart: US Retail Sales ex Autos (data source: US Census Bureau)
We also ran the number for US Retail Sales ex Autos and with Autos, where an interesting picture emerges, showing how total retail sales is actually lower than at the peak, mostly because gas prices are much lower than they were back in 2008.
We also ran the number for US Retail Sales ex Autos and with Autos, where an interesting picture emerges, showing how total retail sales is actually lower than at the peak, mostly because gas prices are much lower than they were back in 2008.
Chart: US Revolving Credit Outstanding (data source: US Federal Reserve)
This is a fascinating data series that shows how the use of credit cards has declined in a way never before seen in a generation. The decline has continued despite the supposed resurgence of consumption that we look at above as some consumers have taken themselves out of the credit card market through widespread defaults and as banks are extending less credit because of balance sheet challenges. Clearly, the deleveraging continues....imagine if that US government had failed to prop up the entire home lending market through its Fannie/Freddie takeovers.
This is a fascinating data series that shows how the use of credit cards has declined in a way never before seen in a generation. The decline has continued despite the supposed resurgence of consumption that we look at above as some consumers have taken themselves out of the credit card market through widespread defaults and as banks are extending less credit because of balance sheet challenges. Clearly, the deleveraging continues....imagine if that US government had failed to prop up the entire home lending market through its Fannie/Freddie takeovers.
Looking Ahead
If risk goes on to rally here, it is really ignoring a very alarming piece of data in the form of the US Advance Retail Sales release. Bonds are going ballistic on the news, far outpacing the action elsewhere, especially in FX so far this morning, where the market is mostly scratching its head and doing nothing save for GBP crosses, which were hit by the ugly production data from the European session. Watch the 0.8400 area in EURGBP as a key resistance level. GBPUSD, after closing so strongly yesterday right under the huge 1.4750 resistance area, is now in full retreat. How on earth is USDCAD down below 1.0350 nearly a half hour after the US Retail Sales release? (as we write this, it jumps to 1.0365 - a strong close toward 1.0400+ sets up an interesting bullish reversal argument for USDCAD - stay tuned).
If risk goes on to rally here, it is really ignoring a very alarming piece of data in the form of the US Advance Retail Sales release. Bonds are going ballistic on the news, far outpacing the action elsewhere, especially in FX so far this morning, where the market is mostly scratching its head and doing nothing save for GBP crosses, which were hit by the ugly production data from the European session. Watch the 0.8400 area in EURGBP as a key resistance level. GBPUSD, after closing so strongly yesterday right under the huge 1.4750 resistance area, is now in full retreat. How on earth is USDCAD down below 1.0350 nearly a half hour after the US Retail Sales release? (as we write this, it jumps to 1.0365 - a strong close toward 1.0400+ sets up an interesting bullish reversal argument for USDCAD - stay tuned).
Watch out for University of Michigan confidence data up shortly. There is almost nothing of interest on the calendar for Monday, so we will review next week's economic calendar highlights on Monday.
Many market participants may be thinking more about the World Cup heading into this weekend than the markets at the present time, though we have to remember that for the US, the World Cup is about 10 steps below the other major American sports for generating interest, (especially in the midst of an exciting NBA finals series) so don't count on the US being out of the office today on World Cup distractions. Hopefully, though, we end the day relatively calmly so we can all enjoy a great weekend of football, or even soccer, as the case may be.
In any case, stay very careful out there.
Economic Data Highlights
- China May Producer Price Index rose 7.1% YoY vs. 6.8% expected and 6.8% in Apr.
- China May Purchasing Price Index rose 12.2% YoY vs. 11.5% expected and 12.0% in Apr.
- China May Consumer Price Index rose 3.1% YoY vs. 3.0% expected and 2.8% in Apr.
- China May Retail Sales rose 18.7% YoY vs. 18.5% expected and 18.5% in Apr.
- China May Industrial Production rose 16.5% YoY vs. 17.0% expected and 17.8% in Apr.
- China May New Yuan Loans out at 639.4B vs. 600B expected and 774B in Apr.
- Germany May Wholesale Price Index rose +0.3% MoM and 6.2% YoY vs. +0.2%/6.1% expected, respectively
- UK May PPI Input out at -0.6% MoM and +11.2% YoY vs. -1.0%/+10.7% expected, respectively and vs. +13.1% YoY in Apr.
- UK May PPI Output rose +0.3% MoM and +5.7% YoY vs. +0.5%/+5.8% expected, respectively and vs. 5.9% YoY in Apr.
- UK Apr. Industrial Production out at -0.4% MoM and +2.1% YoY vs. +0.4%/+2.2% YoY expected, respectively
- UK Apr. Manufacturing Production out at -0.4% MoM and +3.4% YoY vs. +0.5%/+3.8% expected, respectively
- Canada Q1 Capacity Utilization out at 74.2% vs. 73.2% expected and 71.3% in Q4.
- US May Advance Retail Sales out at -1.2% MoM vs. +0.2% expected
- US May Advance Retail Sales ex Autos out at -1.1% MoM vs. +0.1% expected
- US May Advance Retail Sales ex Autos and Gas out at -0.8% MoM vs. +0.2% expected
Upcoming Economic Calendar Highlights
- US Jun. preliminary University of Michigan Confidence (1355)
- US Apr. Business Inventories (1400)
- US Fed's Kocherlakota to Speak (1600)
- New Zealand Apr. Retail Sales (2245)
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