Forexlive Americas FX news wrap 17 Jan: Better retail sales push the USD/Yields higher.

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The stronger US retail sales report set the tone in the early North American session. The December data showed a strong performance in the U.S. consumer sector. Sales excluding autos outperformed expectations, growing by 0.4% against a forecasted 0.2%. The control group, which directly impacts GDP, saw an impressive 0.8% growth, far exceeding the expected 0.2%. Retail sales excluding gas and autos remained stable with a 0.6% increase, consistent with the prior period.

This robustness in retail sales is attributed to falling interest rates and a strong job market, enhancing consumer spending power. Despite some inflationary influence, overall sales grew significantly by 5.6% year-over-year, surpassing the CPI increase of 3.9%.

Sector-wise, clothing and vehicle sales were strong, indicating consumer confidence. However, the softness in bars and restaurants might signal emerging economic concerns. Overall, the data suggests a positive impact on Q4 GDP estimates, reflecting a resilient consumer spending trend.

Soon after the report, the USD moved to new highs vs the EUR, JPY, CHF, AUD, NZD and CAD. The GBP did not make a new high as traders coming into the US session had pushed the GBPUSD higher (lower USD) due to higher than expected US CPI data. So whereas the USD was moving to new highs vs all of the other major currencies, vs. the GBP, it did not reach a new high for the day. However, the USD did come off its low for the day

At the end of day, the GBP is still ending the day as the strongest of the major currencies. The JPY is the weakest. The USD is mostly higher with a decline vs the GBP and near unchanged vs the EUR.

The strongest to weakest of the major currencies

In the US debt market, yields also moved higher with most of the gains in yield in the short-term issues. A look at the yield curve as the market moves toward the closes shows:

  • 2-year yield 4.350%, +12.2 basis points
  • 5-year yield 4.021%, +7.8 basis points
  • 10-year mixed yield 4.101%, plus report for basis points
  • 30-year yield 4.310% +0.6 basis points

The move higher, however, did run into some profit taking in key pairs as technical targets were reached

  • The EURUSD moved down to test the 200 day MA at 1.0846. The low price reached 1.0844 just two pips from the MA target. The price bounced and is trading at 1.0880 currently. The close resistance is up at 1.0894 (high of swing area – see video).
  • The USDJPY extended its run to the upside, reaching a target swing area between 148.45 to 148.59 and stalled. The price has backed off and trades at 148.187 currently (see video here).

Later in the day, the Federal Reserve released their “Beige Book” of the Economic Activity. Below is a summary of the 12 Federal Reserve districts.

  • Majority of the twelve Federal Reserve Districts saw little or no change in economic activity.
  • Three districts reported modest growth; one reported moderate decline.
  • Strong holiday spending in some areas, especially on apparel, toys, and sporting goods.
  • Increases in airfreight volume and credit card lending noted in specific districts.
  • Growth in leisure travel, with New York City described as bustling.
  • Decreases in manufacturing activity across nearly all districts.
  • High interest rates impacting auto sales and real estate, but optimism about potential rate decreases.
  • Concerns about the office market and political uncertainties impacting economic outlook.
  • Most districts have positive or improved future growth expectations.

Labor Markets:

  • Seven (of 12) districts reported stable employment levels; four (of 12) saw modest to moderate job growth.
  • Some districts faced hiring challenges for specialized skills.
  • Signs of a cooling labor market: larger applicant pools, lower turnover, more selective hiring, easing wage pressures.
  • Wage growth described as moderate in some districts but expected to fall over the next year.

Prices:

  • Slight to modest price increases in six (of 12) districts; moderate increases in two (of 12).
  • Price increases subsiding overall, with steady or falling input prices in manufacturing and construction.
  • Retailers facing increased consumer price sensitivity, leading to narrower profit margins.
  • Anticipation of further easing in price increases in the coming year.

Looking at the district highlights, below are the outlines of the 12 districts and an assessment on whether the district was BETTER, the SAME or WORSE in aggregate (all inclusive). Of course, each district is coming off of different levels. Cleveland district, might also be different than the Dallas or the Richmond districts.

Of the 12:

  • 5 were BETTER
  • 3 were the SAME
  • 4 were WORSE

In other words….mixed.

Below is the summary by district:

Boston

  • Status: WORSE
  • Details: Slight economic decline, moderate wage growth, optimism in tourism and convention activity, slow home sales, but rebound expected in 2024 with falling mortgage rates.

New York

  • Status: WORSE
  • Details: Slight economic decline, solid but cooling labor market, increased consumer spending led by strong holiday season, sharp contraction in manufacturing activity, concerns about high cost and reduced availability of credit.

Philadelphia

  • Status: SAME
  • Details: Steady business activity after falling in 2023, slight employment growth, improved labor availability, further subsiding in wage and price inflation, cautious sentiment, subdued economic growth expectations.

Cleveland

  • Status: BETTER
  • Details: Slight economic growth, stabilized employment, return to typical wage increases, little change in cost and price pressures, strong sales for discounted items, reliance on “buy now, pay later” options.

Richmond

  • Status: BETTER
  • Details: Mild economic growth, flat to modestly increasing consumer spending, unchanged demand for nonfinancial services and commercial real estate, modest declines in trade and trucking volumes, softened housing sales and mortgage lending, moderate rise in employment and wages, moderated but elevated inflation.

Atlanta

  • Status: BETTER
  • Details: Slow economic growth, further cooling in labor markets, easing wage pressures, mixed retail sales, strong travel activity with declining hotel spending, slowed home sales, mixed banking conditions, sluggish transportation activity, robust energy demand.

Chicago

  • Status: BETTER
  • Details: Modest economic growth, moderate employment increase, modest increase in nonbusiness activity, slight rise in consumer spending, flat construction and real estate, modest manufacturing decrease, moderate price and wage growth, loosening financial conditions, above-average net farm incomes in 2023.

St. Louis

  • Status: SAME
  • Details: Unchanged economic activity, easing labor markets, slowing rate of price increases, strong growth in travel and hospitality, flat rental prices, slight increase in residential inventory.

Minneapolis

  • Status: WORSE
  • Details: Slight economic decline, positive hiring with declining job postings, moderating wage pressures, mild price increases with most firms reporting no change, strong holiday sales, decreases in construction and manufacturing activity.

Kansas City

  • Status: WORSE
  • Details: Moderate economic decline, falling consumer spending even in low-cost sectors, low demand for seasonal employment, suppressed commercial real estate transactions, concerns about credit performance and borrower liquidity.

Dallas

  • Status: BETTER
  • Details: Modest economic expansion, steady or slight growth across most sectors, moderated wage growth, slightly above-average input cost and selling price growth, neutral to pessimistic business outlooks, weakening demand as a primary concern.

San Francisco

  • Status: SAME
  • Details: Stable overall economic activity, improved labor availability, eased wage and price pressures, modest growth in retail sales, mixed demand for services, weakened demand for manufactured products, solid agriculture conditions, varied real estate activity, little change in financial sector conditions.

In other markets:

  • Crude oil is trading up $0.50 or 0.70% at $72.90 after trading as low as $70.50.
  • Gold is trading down -$22.25 or -1.10% at $2005.90. The $2000 levels next target
  • Bitcoin is trading at $22,661 down $470 on a day

The US stocks closed lower for the second consecutive day:

  • Dow Industrial Average -94.45 points or -0.25% at 37266.68
  • S&P index fell -26.77 points or -0.56% at 4739.22
  • NASDAQ and expel -88.73 points or -0.59% at 14855.61

Thank you for your support. Have a great day, afternoon, evening.

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