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Consumer Recovery on Hold

US Consumer Spending Contraction Indicates Renewed Softness in the Economy

consumer-recovery

The consumer spending recovery meme has not picked up traction contrary to expectations from policymakers after the latest period measuring retail sales saw both the core and regular monthly figures contract. This might temper the outlook for interest rates if the real economy continues to stumble.

Spending Data Disappoints

While weak consumption data earlier in the year was attributed to seasonality and weather related factors, the latest dip in spending underlines the consumer recovery theme pushed by policymakers is not coming to fruition.  Although the savings rate has not jumped tremendously, weaker spending is likely the outcome of Obamacare and unrelated to seasonal factors.  Regular retail sales tumbled -0.30% versus the 1.00% recorded in the prior month, well below expectations of 0.20% expansion.  The core retail sales figure followed a similar trend with the number sinking a modest -0.10% compared to the 0.80% print from May.  This marked the biggest month over month drop in retail sales since February as analysts revise expectations for a second half consumer recovery after data showed drops in all categories across the board.  Nevertheless, equity markets remain unfazed by the developments with the Nasdaq leading the pack higher during the US cash equity session.

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nsdq-sep1507152015

Chinese GDP Hits Targets

China has been the subject of much debate recently as policymakers take additional measures to ease financial conditions in the economy while trying to stabilize the untamed volatility of equity markets. A slew of data out this week provides insufficient evidence of an actual recovery despite the overwhelmingly positive nature of the releases. While conditions in the real economy continue to deteriorate, official statistics released overnight showed that annualized GDP expanded at a 7.00% pace compared to estimates of a slight downshift to 6.90%. Quarterly GDP accelerated to 1.70% versus the 1.30% recorded in the prior period. However, this contrasts to unofficial estimates which put annualized growth closer to 3.50-4.00%, well below the level targeted by Chinese policymakers. The fact that all data released overnight surprised expectations to the upside bolsters suspicions that the latest uptick in data might be a ploy to restore confidence in markets that have been shaken by recent turmoil.

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usdcnh07152015

UK on Cusp of Deflation

Comments from Bank of England Governor Mark Carney during testimony prepared for the House of Commons suggested that the Central Bank was approaching an interest rate hike after 6-years at the current 0.50% level. These remarks sent the Pound soaring versus peers despite echoing earlier statements made in May as Central Bank policymakers face tough decisions ahead in the light of the inflation outlook. Consumer price data released yesterday that the UK economy is currently on the tipping point of deflationary pressures with the annualized CPI figure printing at 0.00%. Monthly CPI was also unchanged at 0.00%, a strong indication that deflationary forces are once again spreading through developed nations in light of the cyclical weakness. The Bank of England’s Monetary Policy Committee currently forecasts an improvement in the second half of the year, but subdued energy prices might continue to weigh on the measure, preventing an earlier rate hike.

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gbpusd07152015

WTI Crude Oil Head and Shoulders Technical Pattern

Overnight news of a massive drawdown in inventories according to the American Petroleum Institute sent crude oil prices surging higher after recent weakness and expectations of additional supplies coming online from Iran saw prices drop below a multi-month range. Increased demand has helped to offset concerns of burgeoning oversupply, but the prevailing trend nevertheless remains down. West Texas Intermediate is currently in the process of forming the right shoulder of a head and shoulders bearish formation. Should the right shoulder complete, oil prices will be keen to retest the important $50.85 support level before potentially falling back below the $50 handle. However, if prices continue to appreciate, breaking above resistance, it could be signaling further upside in the crude oil benchmark.

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