Intraday Market Thoughts

Retail Sales Questions ahead of Powell

by Adam Button
Jul 16, 2018 23:02

Some key metrics on US retail sales were soft Monday but revisions helped to bolster the dollar. The Swiss franc was the top performer while the Australian dollar lagged. New Zealand CPI is up next. A new Premium trade in CHF has been issued ahead of tomorrow's Congressional testimony by Fed chair Powell. The Premium video on today's new trade and existing trades is found below.

US retail sales matched the +0.5% consensus expectation in June but with May's revision to +1.3% from +0.8%, the overall tone of the report was stronger. The effect was less-pronounced once volatile categories like autos, gas and building materials were stripped out but the report was still enough to halt a decline in the US dollar on the day. Can the true health of the US consumer be assessed via volatile items? And will Powell sound relaxed about the recent gains in inflation in tomorrow's testimony?

Cable climbed as high as 1.3295 before backing off to 1.3230. Part of GBP weakness was due to uncertainty about May's government but she eventually won a Brexit amendment vote 303 to 300. She remains in an extremely precarious, almost impossible position and it would be remarkable if she managed to hang onto her job until the 2022 election.

It's also not entirely clear what would be the reaction if she were forced out or quit. Initially there would be turmoil and GBP selling but others might see it as a path to a soft Brexit or another referendum, which could be positive. Ultimately, it's tough to see any future where both Brexit sides call a truce and move on.

The big move in financial markets in the past week has been oil and that extended with a 4% decline on Monday. Key levels from the recent run-up have been broken and the 61.8% retracement of the June-July rally is now hanging by a thread.

Interestingly, USD/CAD finished lower despite the drop in oil price. If crude continues to fall, that surely won't last.

Looking ahead, New Zealand CPI is due up at 2245 GMT and expected up a modest 1.6% y/y. Later, sterling will be back in focus with jobs data at 0830 GMT.

Act Exp Prev GMT
CPI (q/q)
0.5% 0.5% Jul 16 22:45
Fed Chair Powell Testifies
Jul 17 14:00

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