US Retail Sales Have Been Rising for 4 Months in a Row

August 14, 2013

The US dollar was traded upwards on Tuesday against most major currencies amid the release of a positive retail sales report and increasing US treasury bonds yields. Retail sales grew by 0.2% in July compared with the prior month, which almost coincided with the expectations of 0.2-0.3%. However, prior month sales were raised: June growth accounted for 0.6%, not 0.4%.

Retail Sales ex Auto, which show consumer spending trends better, rose by 0.5%, Consensus 0.4%. Its growth in July has been the best since early 2013. Employment growth and consumers welfare improvement due to house price and stock quotes growth have a positive effect on consumer spending growth, which may offset the negative impact of government spending cuts on the U.S. economy.

The euro dropped on Tuesday despite German Economic Sentiment growth. According to the Centre for European Economic Research ZEW, German ZEW Economic Sentiment grew up to 42 in august compared with 36.3 in July anticipating the forecasted growth to 39.9. Euro-zone Economic Sentiment has also rocketed to its high since 2010. According to Dr. Michael Schröder - Head of the Research Department of ZEW – the worst part of the recession in the euro-zone has already been passed. At the same time, euro-zone industrial output rose only by 0.7% in June, which turned out lower than forecasted +0.9%.  

The pound had almost no reaction on inflation data for July which turned out close to the expectations. Consumer Price Index dropped to 2.8% from 2.9% in June. Core inflation that excludes energy and food prices slowed down more than forecasted to 2% from 2.3% prior month. But the pound was traded better than the euro – housing market data provided support. RICS House Price Balance grew to 36 in July against 21 in June having reached the highest level since November, 2006. ONS House Price Index was rising at the fastest rate in June since December, 2012 – by 3.1% at an annual rate.

The yen continued weakening on Tuesday for the second day amid Japanese stock market growth which increased by 2.6% according to Nikkei. Some support was provided by both statistics data and Nikkei newspaper message that the government of Japan considered a possibility of corporate income taxes reduce to mitigate the effect of the planned sales tax increase. Core Machinery Orders dropped only by 2.7% in June while a fall by 7% was expected. Besides, the Bank of Japan published BoJ Monetary Policy Meeting Minutes on Tuesday where the estimate of state of the economy has been raised to a "moderate recovery".

The Australian dollar was traded downwards on Tuesday amid the Business Confidence decrease. NAB Business Confidence dropped below zero in July to -3 (the lowest in 6 months) Vs 0 in June.

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