Wall Street traded lower as the S&P 500 and NASDAQ both posted negative returns. The catalyst was that US retail sales came in negative for a third consecutive month in June, implying that Q2 2012 GDP could be meaningfully impaired – and that Chairman Bernanke may sound rather dovish when he appears on Capitol Hill for his semi-annual testimony tomorrow.
The implication is that a third tranche of quantitative easing is more likely than it seemed yesterday and therefore, while markets cycled capital from equity to debt, the US dollar was not a safe haven asset, but rather was weaker on speculation that the money supply will expand further as a result of incremental unsterilized asset purchases.
The TSX fared better as a result of a higher WTI crude price, closing flat on the day as WTI for delivery in August was higher by US$1.21. CAD was more-or-less unchanged, with USDCAD closing near 1.0150.
US retail sales for June released today were very weak at -0.5% m/m. This was the third consecutive negative US retail sales print. The implication is that nominal consumption will be very weak during Q2. We’re tracking an implied -0.8% contraction in nominal retail sales at an annualized rate,
The IMF also released updated growth forecasts downgrading expectations for economic growth in 2012 and 2013. Expectations for world output were ratcheted down to 3.5% in 2012 and 3.9% in 2013 from 3.6% in 2012 and 4.1% in 2013 in the previous forecast. The changes are essentially a reactive response to slower growth than expected in emerging markets, the ongoing European financial crisis, and the failure of US job gains earlier in the year to translate into economic strength
EURUSD (1.2294) EURUSD is trading within Friday’s range but continues to trend higher since the release of US retails sales numbers. We expect the EUR to trend lower. The biggest risk this week will be Fed Chair Bernanke’s monetary policy report to the Senate on today. The German courts announced that they will not make a decision on the ESM until September 12th, leaving the EU hanging in disarray.
The Great British Pound
GBPUSD (1.5656) On a weaker USD and strong support from the UK fiance ministry and the BoE the GBP continues to move up breaking the 1.56 level
Asian –Pacific Currency
USDJPY (78.97) The USD was weakened after negative data showed a larger than expected drop in retail sales. The JPY is unexpectedly strong. Be careful of BoJ intervention to support the USD.
Gold (1593.05) is wandering aimlessly ahead of the testimony of Fed Chairman Ben Bernanke and before announcements from the PBOC. Markets are expecting huge rounds of monetary stimulus from both sides of the Pacific.
Crude Oil (87.01) continues to trade strong on geopolitical turmoil, from Iran and Syria and Turkey. Fundamentals show that crude should be trading lower, especially after warning from China and a revision in global growth by the IMF released yesterday.