US retail sales were modestly disappointing

16 March, 2016

FX News Today

European Outlook Asian stock markets are mixed, with the ASX posting slight gains, but Japanese markets under pressure as the Yen strengthens ahead of the Fed announcement today. UK and US stock futures are moving higher though, indicating that there is some room for improvement. Investors continue to hold back ahead of upcoming policy decision, with BoE and SNB due to tomorrow, after today’s FOMC decision. We don’t expect policy changes, but the statements will give an idea about the direction of policy going ahead.

China Premier Li discussed the financial system which he said primarily needs to support the real economy. He acknowledged that bad loans are on the rise and some industries face difficulties, but banks have enough bad loan provisions to cope with risks. Li also said China will use some market-oriented measures to lower debt levels at companies and plans to use debt-to-equity swaps to lower debt levels. Those swaps have been rumored in the marketplace and could cause a stir on the fact. He urges regulators to not lower diligence against financial risks, though the global economic recovery is fragile.

US retail sales were modestly disappointing, with small 0.1% February declines with and without autos that followed downward January revisions that more than offset small December boosts. We saw a February hit from gasoline prices and hefty upward revisions in the building material sales data since December. We expect 1.8% Q1 GDP growth after a Q4 GDP boost to 1.2% from 1.0%, with a 3.7% (was 3.8%) Q1 clip for real consumption after a small Q4 boost to 2.2% from 2.0%.

US PPI dropped 0.2% in February, the headline drop with a flat core price figure track assumptions, following the January mix of a 0.1% headline rise with a 0.4% core price surge, as oil prices weighed on the headline while core price gains moderated after surprisingly big January increases.

Main Macro Events Today

FOMC Interest Rate Decision: FOMC now likely to remain on hold through Q1 given its downgraded outlook and the weakness in recent data, and probably won’t adjust rates upward until the June 16, 17 meeting (the next one beyond March that includes a press conference and SEP). We look for 25 bp rate hikes in June and September.

US CPI: We expect a 0.2% February CPI headline drop led by a 10% gasoline price plunge, with a 0.1% core price increase. The “core” y/y rise should remain at January’s 2.2%. The 0.028% January U.S. CPI rise with a sturdy 0.293% core price increase beat estimates despite the expected 2.8% energy price drop and flat food price figure thanks to a 0.5% rise in medical care service prices, a 0.6% apparel price bounce after four consecutive declines, and a 0.3% new vehicle price rise after two flat figures. We also saw a fourth consecutive 0.2% rise for owners’ equivalent rent.


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