US Dollar Index Sinks Following Weaker Retail Sales

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Weaker US Retail Sales, Price Index Indicate Slower 3Q Growth

US retail decelerated abruptly in July despite supposed job market strength, suggesting lower inflation, growth and business activity in the short-term, and signaling that the Fed is likely to abstain from making any decisive policy moves in the foreseeable future.

Moreover, as it is still the middle of 3Q16, further developments in the real economy, employment, domestic consumption and the financial markets, as well as lending, might significantly affect the pace of growth, with downward pressures seen as a major concern, and economic expansion remaining subdued.

US consumer spending, which drives roughly 72 percent of the GDP, has been weakening throughout the current quarter, with retail sales, a key measure for domestic consumption, posting zero gain in the month of July, below previous expectations of 0.4 percent advance. The halt in retail followed a 0.8 percent expansion in June, as the Commerce Department reported on Friday. Moreover, excluding the automobile segment of the consumer market, sales plunged 0.3 percent in July.

“You have had two months of very strong job growth. It just seems very odd that spending would be weak,” Steve Blitz of New York-based M Science said.

An annualized reading, however, still demonstrated a 2.3 percent growth. Auto sales rose 1.1 percent month-on-month, as the relatively loose monetary conditions allowed for a considerable expansion of consumer credit, and the dollar’s strength kept prices on imported goods subdued.

Subsequently, weaker sales and low inflation suggest the economy has not yet achieved enough sustainability for the Fed to take decisive action on policy.

“Fed members are afraid to come out from under their rocks until growth is sustainably solid and inflation in, near or at their target, and today’s reports don’t provide them with any comfort that will happen soon,” Joel Naroff of Holland, PA-based Naroff Economic Advisors said.

Reflecting the less optimistic view on the broader economy, the New York Fed downgraded its 3Q GDP growth forecast to 2.43 percent from the previously expected 2.63 percent. The data suggest more sluggishness in the economy, the regulator said.

“The largest negative contribution came from retail sales data,” the NY Fed’s statement read.

The Atlanta Fed also revised its 3Q16 growth forecast downward, from the previously expected 3.7/3.8 percent to 3.5 percent, referring to the retail data and the marred outlook on inflation.

Despite the recent gains in US payrolls and hiring, the stickiness in wages might be the main factor preventing domestic consumption from more solid gains. The reasonably high level of household indebtedness might be another factor.

“It is a bit disappointing,” Kevin Cummins of Stamford, CT-based RBS Securities Inc. said. “Labor income is the key. Confidence seems to be moving sideways.”

To make the situation even more hopeless for those expecting a Fed hike, a separate report by the Labor Department showed that wholesale prices slumped in July – apparently, amid the lack of efficient consumer demand – their greatest slide in 12 months. Factory-gate prices dropped 0.4 percent in July compared to a 0.5 percent gain the previous month, with cheaper imports to blame.

With observers now expecting a hike in Fed fund rates in December, the widespread sentiment in the financial markets is that no hikes will happen well into next year.

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Currencies: Dollar falls after weaker-than-expected retail sales rise

by Dollar Index · April 14, 2020

NEW YORK (MarketWatch) — The dollar declined against its rivals Tuesday after U.S. retail sales for March missed estimates.

The euro EURUSD, +0.92% traded at $ 1.0613 after the data, compared with $ 1.0575 earlier in the day. The single currency traded at $ 1.0569 in the previous session.

After three consecutive months of declines, retail sales saw a return to growth in March. But the rebound wasn’t as large as economists had expected.

“I think the market is looking at ex-autos and the fact that it came in at 0.4% rather than 0.7%. This isn’t as strong as the market would have hoped,” said Doug Borthwick, head of foreign exchange at Chapdelaine & Co.

“There was an expectation that there would have been a large snapback in March — and that hope has been dashed by today’s number.”

At 0.2%, the Bureau of Labor Statistics’ producer price index, a measure of inflation at the wholesale level, came in slightly below expectations for a rise of 0.3%.

“The Fed is looking for some sort of inflation, and that’s not yet showing up in the data,” Borthwick said.

The ICE dollar index DXY, -0.81% a measure of the dollar’s strength against a basket of six currencies, slipped to 99.07, compared with 99.51 on Monday.

The pound GBPUSD, +0.63% which hit a five-year low of $ 1.45655 Monday afternoon, rose to $ 1.4722 after the data. The pound had weakened earlier in the session after Britain’s official statistics agency said that consumer prices were flat in March.

After the U.S. data, the dollar USDJPY, -0.53% dropped to 119.47 yen, from ¥120.13 late Monday in New York.

The dollar added to losses against the yen from Monday’s session that followed remarks from Koichi Hamada, one of Japanese President Shinzo Abe’s economic advisers, who said that the dollar at ¥120 was excessively weak for the yen, and that a fair value was around ¥105.

In subsequent remarks on Tuesday, Hamada reportedly said that yen selling was reaching its limits.

Singapore

The dollar sold off against the Singapore dollar after monetary authorities in Singapore opted to keep the city-state’s monetary policy unchanged, surprising the market, which had expected policy makers to adopt further easing measures to help weaken the currency.

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Economic Report

U.S. retail sales slump in January and December’s initial gain was erased

Jeffry Bartash

Auto dealers, home centers suffer biggest declines in early 2020

Sales at U.S. retailers fell in January and the holiday season ended on a weak note, government figures show.

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The numbers: Sales at U.S. retailers fell by 0.3% in January — the biggest drop in almost a year — chiefly due to declines at auto dealers and home centers. And a previously reported increase in sales in December was wiped out.

Economists polled by MarketWatch had forecast a 0.2% increase in sales.

Excluding autos, retail sales were flat last month, the government said. And sales slipped 0.2% if autos and gas are stripped out.

What happened: Auto dealers got a boost toward the end of 2020 after a pair of major hurricanes damaged thousands of cars, but eventually the replacement cycle would run its course. Sales fell slightly in December and they sank 1.3% in January.

Sales also fell sharply at home centers that often experience herky-jerky sales during the winter months. And home-furnishing stores and pharmacies saw a drop.

Meanwhile, gasoline stations posted a 1.6% increase in sales as prices at the pump rose. Apparel and department stores also posted higher sales.

Sales were flat at internet retailers.

Big picture: Consumers ratcheted up spending in the waning months of 2020, but most of it took place earlier in the fourth quarter. Spending slowed at the tail end of the year.

Still, retail sales are healthy despite the January decline. Some retailers such as internet sellers are doing much better than others like traditional department-store chains. And home furnishers and home centers have been strong performers, reflecting the strongest real-estate market in more than a decade.

The next year is likely to bring more of the same.

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Rising wages and recent tax cuts have given consumers more money to spend, but higher inflation has eaten up some of the gains and Americans may have to sock more money away. The U.S. savings rate fell last year to a 12-year low.

What they are saying?: “I suspect that the January weakness reflects in part the terrible weather during the month,” said chief economist Stephen Stanley of Amherst Pierpont Securities.

“This is a temporary pause in consumer spending following a strong holiday sales season,” said Stuart Hoffman, senior economic adviser at PNC Financial Services.

Both Stanley and Hoffman predict retail sales will bounce back in February.

Market reaction: Investors blanched initially at weaker retail sales and higher inflation as reflected in the latest report on consumer prices, but the Dow Jones Industrial Average DJIA, +1.31% and S&P 500 index SPX, +1.22% turned higher in Wednesday trading.

Benchmark Treasury yields also climbed. The 10-year government bond yield TMUBMUSD10Y, 0.741% , for instance, touched its highest level in about four years at 2.88%. Bond prices move inversely to yields.

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Dollar weakened on US retail sales decline

US dollar bullish bets fell to $15.31 billion from $20.77 billion against the major currencies during the one week period, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to October 22 and released on Friday October 25. The ICE US Dollar index USDX continued falling on weak US economic data including manufacturing sector performance and decline of retail sales in September of 0.3% over month when 0.3% increase was expected.

CFTC Sentiment vs Exchange Rate

October 22 2020 Bias Ex RateTrend Position $ mln Weekly Change
CAD bullish positive 2550 1569
AUD bearish negative -3014 201
EUR bearish negative -7099 3264
GBP bearish negative -4218 1599
CHF bearish negative -1432 166
JPY bearish negative -2093 -1330
Total -15306

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