Retail Sales Weigh on USD, Not Risk Trades

Weak January retail sales raised fresh questions about the US economy just as another storm hit the Eastern seaboard. The Swiss franc was the top performer while the Australian dollar lagged. Chinese CPI is due later.

US retail sales fell 0.4% in Jan, missing the 0.0% consensus. Stripping out volatile items like autos, gasoline and building supplies resulted in an equally disappointing number and December sales were revised down substantially.

The US dollar slumped immediately after the data and stock futures sold off but, if anything, the market was surprisingly sanguine. USD/JPY fell 20 pips to 101.70 but slowly climbed back for the remainder of the day, hitting 102.30. The numbers gave a fresh boost to cable, pushing it to a multi-year high of 1.6673 but by late in the day, it retraced to a pre-retail sales level of 1.6655.

Economists were quick to blame poor weather once again but were also revising first quarter estimates below 2%. Many believed the economy would grow around 3% just a few weeks ago.

Deciphering exactly how the economy is performing will continued to be a challenge as another winter storm hit on Thursday stretching from Atlanta to Boston. The timing is especially tough because it's non-farm payrolls survey week.

Two market moves stood out 1) The S&P 500 proved the doubters wrong again, rising 10 points to 1829 after futures traded as low as 1802 after the data 2) Gold climbed above the $1300 for the first time since November but it stalled short of the 200-day moving average at $1304. The 200dma has held for more than year.

The focus now shifts to Asia and Chinese CPI numbers at 0130 GMT. Inflation is expected to slow to 2.4% from 2.5% but a deeper fall would give the PBOC or govt more room to stimulate the economy and that could boost risk trades.