US Spending Stays Flat

Daily Analysis - 02/06/2015

Rise in Personal Income Fails to Translate to Spending Gains


Consumption and income figures released yesterday from the United States showed that the consumer recovery has yet to take hold as the savings rate hits multi-month highs while spending falls to lows not seen since early 2014.

American Consumer Spending Falters

Much has been made of the growing bubbles in student loan debt and subprime auto loans but one area of interest that has been largely overlooked is the growing savings rate of Americans. In the latest readings of income and spending, it was revealed that the US savings rate has climbed from 5.20% to 5.60% in the most recent reporting period. This comes as personal consumption expenditure fell to the lowest level since February of 2014 even as income levels rose. Personal income figures also released yesterday showed wages broadly growing by 0.40% last month versus expectations of a 0.30% gain. The drop in consumer spending is likely to dent growing woes for American corporations, just as sell-side institutions start to publish reports stating that equities are overvalued. Stock benchmarks were unfazed with the Nasdaq Composite leading peers, gaining 0.25% in yesterday’s session.


Australia Leaves Rates Steady

After cutting rates in the previous meeting, the Reserve Bank of Australia opted to leave the benchmark interest rate on hold as the Central Bank evaluates the impact of fiscal policy measures enacted by the government. The shift to an austerity driven budget might force the bank to reevaluate policy measures down the road and remain willing to cut rates further to support sustained growth in the economy. In his comments after releasing the decision, RBA Governor Glenn Stevens touted the improvements in lending while stressing the Central Bank’s efforts to avert a housing bubble after business and personal lending metrics showed moderate growth. Nevertheless, in his remarks, Stevens reiterated that the Australian dollar remains overvalued and further depreciation is warranted given the decline in commodity prices over the last year. AUDUSD has climbed steadily since the announcement, gaining approximately 75 pips since the announcement.


French Unemployment Climbs

Job seekers data released yesterday from France showed that socialist President Francois Hollande has been unable to stem the rising tide of unemployment plaguing the nation as it seeks to restore growth. Austerity driven measures are the main culprit behind weaker jobless numbers even as GDP growth is at the highest level in years. According to the latest numbers from France, the jobless rate now stands at the highest level in 16 years based on fourth quarter figures which recorded 10.40% unemployment. Although official unemployment data for the last 5 months has not been forthcoming, the job seekers total for April showed continued upward momentum in unemployed individuals as the nation looks unable to tackle the growing problem. This is bolstering support for anti-austerity and anti-Euro parties across Europe like France’s National Front Party which seeks to leave the common currency.


USDJPY Equidistant Channel Technical Pattern

The Yen has rebounded slightly, strengthening against peers modestly after hitting the lowest level in years against the US dollar. Helped along by extremely accommodative monetary policy measures, the Yen is likely to continue weakening as the Bank of Japan expands the monetary base further after growing the amount of Yen outstanding at an annualized pace of 35.6%. However, weak economic data from the United States has seen the USDJPY retreat from recent highs as concerns about growth remain abundant. The equidistant channel pattern setting up in the USDJPY currency pair has a bullish bias after setting up for two weeks. Taking advantage of the technical pattern relies on the initiation of positions at the lower channel line to be closed at the upper channel line. Fighting the uptrend is not suggested due to worsening reward and heightened risk.


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