This morning Advance Retail Sales figures came in higher than expected here in the US, showing that the US consumer still has a pulse. Reported gains came in at .8%, vs. an expectation of .6%. This bodes well for the US economy as the consumer makes up some 70% of GDP.
However, all of this buying may be chasing prices higher. The US PPI Index came in hotter than expected showing a YoY gain of 3.5% vs. an expectation of 3.3%. US CPI figures are due out tomorrow, which will better show where we stand with inflation. Rounding out the trifecta is today’s FOMC meeting which is expected to keep policy the same, though recent events could require a Fed response.
In the UK, CPI data also came in higher than expected, posting a gain of 3.3% vs. an expectation of 3.2%, the highest in nearly six months. Once again a letter of explanation will be forthcoming as inflation is higher than the government’s 3% limit. However, it appears as though policy-makers are counting on next year’s tax increase to curb demand so whether or not that works remains to be seen. Next week’s release of the rate policy meeting minutes will show if any policy-makers have changed their tune.
I guess one place that is not buying stuff is New Zealand, where retail sales figures showed a decline of 2.5% vs. an expectation of a .8% decline, which is the largest decline in over 13 years.
So this morning is a bit of a mixed bag, as the markets attempt to sort themselves out.
In the forex market:
Aussie (AUD): The Aussie is losing ground this morning as the US Dollar is gaining strength as the market flips from mild risk taking to risk aversion. However, the AUD/USD pair did trade above parity earlier this morning which means that the Aussie was worth more than the Dollar. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is remarkably higher despite worse than expected retail sales figures and a reduced GDP forecast that projects slower growth. So one would think that the Kiwi would be lower at this point, but in fact it is higher across the board. Now who could be buying???
Loonie (CAD): The Loonie is mostly lower this morning as Leading Indicators figures came in lower than expected, showing a gain of .3% vs. an expected .5%. Oil is trading lower to just under $88 which is also putting some pressure on the Loonie.
Euro (EUR): The Euro is mixed today as lower than expected Industrial Production figures and mixed ZEW surveys of the current and economic situation have left investors confused.
Pound (GBP): The Pound is lower across the board despite an uptick in CPI figures. The Retail Price Index figures also came in higher than expected which show that inflation is starting to move higher. However, the BOE remains convinced that higher taxes next year will lessen demand which will hopefully bring prices back below the government limit of 3%. But perhaps other action may be appropriate, like reducing QE or (gasp) raising rates. (Click chart to enlarge)
Dollar (USD): The Dollar is mixed this morning ahead of the FOMC rate decision due out later today. Advanced retail sales came in better than expected, but so did PPI. Expect Bernanke to take a lot of heat today defending his QE2 program. No change is expected for policy at this time, but let’s see if he addresses any of the recent economic developments (bond yields moving higher, extension of Bush tax cuts).
Yen (JPY): The Yen is lower across the board as risk appetite has increased as the US retail sales figures bode well for the global economy. In addition, the Japanese PM called for corporate taxes to be cut 5%, to try to stimulate growth.
Despite all of the risk in the global economy, it looks as though the consumer is not dead yet heading into the holiday season. Inflation is starting to creep higher around the globe as evidenced by higher CPI and PPI data in both the UK and the US.
The effects of QE2 have clearly helped push commodities higher, and the extension of the tax cuts have also increased risk appetite. However, recent rises in bond yields have challenged the wisdom of all of this, as money printing and global deficits warrant a higher rate of return.
How this all plays out is anyone’s guess, but keep an eye out for the Fed decision today as volatility could be substantial.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, blog, cad, course, currenc, currency, currency market, currency trading, dollar, economy, EUR, Euro, forex, forextrading, free, fx, fxedu, gbp, Il, jpy, Mike Conlon, nzd, practice, ssi, time, trade, USD, Yen