Originally published by Rivkin Securities
The US economy has started 2017 with a bang as positive US data on Wednesday showed that both retail sales and consumer price inflation rose more than forecast in January. Advanced retail sales which are an important measure of the consumer, which account for around two-thirds of the U.S. economy, rose +0.4% month-on-month against estimates of +0.1%. The headline consumer price index rose +2.5% year-on-year in January surpassing estimates of +2.4% and a previous reading of +2.1% reflecting that the rebasing effect of oil prices has run its course. The core measure also topped estimates, gaining +2.3% over the year with forecasts calling for +2.1%. The Fed’s preferred measure of the inflation, the personal consumption expenditure price index or PCE is due to be released on March 1st.
Following the data US treasury yields rose, both the two and ten-year yields rising +2.5 and +3.6 basis points respectively in trade this morning. Still the US dollar index gave back initial gains to be -0.07% weaker at the time of writing, down -0.12% against the euro, -0.61% against the Aussie dollar and -0.22% against spot gold.
The US dollar’s modest weakness seemed counter intuitive especially since we had FOMC members Rosengren and Harker speaking in support of hiking rates three times during 2017. This could be put down to rising inflation lowering real interest rates in the U.S. despite a slightly more hawkish Fed. Alternatively the criticism faced by Janet Yellen in her testimony to the House Panel may have weighed on the currency. Republican lawmakers seemed critical of the Fed’s unconventional monetary policy since the GFC, although that isn’t a new development.
That couldn’t stop US equity markets marching to new all-time highs for with the S&P500 setting a new all-time high for the fifth session in a row up +0.45% while the Nasdaq 100 extending to a seventh recording setting session, up +0.51%.
The pound was one of the underperformers against the US dollar, falling -0.12% despite the unemployment rate remaining steady at +4.8% as forecast for the final quarter of 2016. The reason for the pounds weakness came on the back of weaker than forecast wage growth. For the three months through until December wages excluding bonuses increased +2.6% against forecasts to remain stable at +2.7%. With consumer price inflation forecast to rise to +2.8% by the end of this year this is likely to put increasing pressure on households reducing their purchasing power. The consumer is a key driver for the U.K. economy and may dampen growth in 2017 meaning the Bank of England is less likely to raise rates to combat rising inflation.
Locally the S&P/ASX 200 is set to take a breather this morning after gaining +0.94% on Wednesday with ASX SPI200 futures down 4 points in overnight trading. The index has now closed above the key technical resistance level at 5,800 which is a bullish sign opening up further gains in the coming months back towards 6,000.
Data releases:
· Australian Unemployment Rate (MoM Jan) 11:30am AEDT
· US Housing Starts & Building Permits (MoM Jan) 12:30am AEDT