US data – roughly in line but…

US figures released yesterday were somewhat mixed. Retail sales was only slightly lower than expected but the key core retail sales was in line, initial claims were nearly in line (434k vs consensus 430k). Only the PPI was higher, both the headline (+0,8% m/m vs expected +0,6%) and the core (+0,3% vs expected +0,2%).

On the surface there is nothing to be excited about. However, as we have already pointed out, there is a noticeable deterioration in weekly figures from the labor market. While that tendency hasn’t been so far confirmed by the monthly payrolls report, there might be some lag and we can see some impact next month. Four weeks average climbed above 435k for the first time since November’11 and we saw (private) payrolls increases of some 100-150k at that point rather than 200k+ which are currently seen as a standard. Other than claims and new orders component in ISM indices (both) there are no other really worrying signals from the US economy. However, one should stay vigilant – a combination of weaker economy and higher prices wouldn’t be received well on the market. Last year, the soft patch resulted in a 20% correction on the S&P500.  

EURUSD, commodities – a battle for 1,4150

The market is having ups and downs as of late and there is a feeling of no single driving force behind those moves. It was a decline on commodities strengthening the dollar and it were declines on the EURUSD pushing commodities down. Yesterday, however, the market focused on the EURUSD and a key 1,4150 level. Technically it is very important – moving lower would make a new low which is officially seen as a strong signal of an end of a given trend (here the bullish trend started in January). That’s why there was such a wrangling around those levels yesterday. So far the level has been defended and should that lead to some kind of rebound (the target could be around 1,44-1,45 and then we could see a possible right arm of the H&S formation), commodities could well witness some larger rebound as well.

Events to watch – US CPI, flash GDP in the zone

While Fed is not to act anytime soon, the US inflation is the figure that may impact the market anytime. The headline is expected to come out at +0,4% m/m and the core at +0,2% m/m (8.30 ET, 14.30 CET). Higher readings would be dollar positive and would increase risk aversion as a combination of higher inflation and somewhat weaker data from the real economy is the last thing bulls (both on equities and commodities) want to see.

Earlier in the day there is a flash reading on the GDP in the euro zone for the first quarter (5.00 ET, 11.00 CET, consensus +0,6% q/q) and there is also a flash University of Michigan sentiment index (9.55 ET, 15.55 CET, consensus 69,9 pts.).   

Przemysław Kwiecień PhD, Chief Economist

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