Originally published by Rivkin Securities
The US dollar fell on Friday after slightly disappointing advance retail sales and US inventories data. Month-on-month the advance reading of retail sales gained +0.6% against expectations of +0.7%, although a strong gain from the prior revised +0.2%. A core measure which excludes purchases of autos rose +0.2% over the same period, lower than the forecast +0.5% and previously revised higher +0.3%. Business inventories (MoM Nov) also disappointed increasing +0.7% from a revised -0.1% decline in October. The relationship with business inventories is inverse, with decline seen as contributing to GDP as those inventories signal demand and need to be replaced.
Month-to-month these figures can be volatile and need to be assessed as part of the broader picture. Friday also saw the release of the producer price index (YoY Dec) which is a leading indicator for consumer prices given producers tend to pass on cost increases. The headline figure rose to +1.6% from +1.3% a year earlier which was in line with expectations. A core measure over the same period was unchanged at +1.6% slightly higher than the +1.5% anticipated.
Finally we also had the preliminary University of Michigan consumer confidence survey (MoM Jan) which missed forecasts of 98.5 with an actual reading of 98.1. A measure of inflation expectations as part of the survey increased, with one year expectations rising from +2.2% to +2.6% while the 5-10 year increased from +2.5% from +2.3%.
Looking ahead this week we have Donald Trump’s inauguration as President where the first 100 days will be critical in setting the tone for his presidency with details on his policies, which have so far been light on information.
The US Dollar Index slipped -0.16% while equity markets gained, with both the S&P 500 and Nasdaq 100closing +0.18% and +0.36% higher respectively with the Nasdaq100 at a new all-time high. Forecasts by the Atlanta Fed expect growth in the fourth quarter to be +2.8%, slightly lower than the +2.9% estimate of January 10th. Still the broader picture of the US economy continues to improve at a robust rate thanks to consumer spending, underpinned rising wages thanks to a tightening labour market.
Oil prices fell despite a small drop in the US Baker Hughes Oil Rig Count from 665 to 659 (Jan 13th) as concerns around OPEC compliance for production cuts remained central. Both Crude Oil and Brent Oil crude oil declining -0.12% and -1.0% respectively. Historically OPEC agreements have never seen 100% compliance and expectations that this trend will continue are valid. The compliance committee will meet on January 22nd although there is no set way to enforce compliance.
Still signals from Saudi Arabia and Kuwait that they have cut more than announced under the agreement are a positive sign that will continue to be supportive for oil prices unlikely to go back below US$45.00 per barrel.
Locally the S&P/ASX 200 finished -0.79% lower on Friday at 5,721.12 although we can expect some of this to be reversed today with ASX SPI200 futures closing +18 points higher on Friday.
Data releases:
· Australian TD Securities Inflation (MoM & YoY Dec) 11:30am AEDT
· Euro-zone Trade Balance (MoM Nov) 9:00pm AEDT