Strong Retail Sales Data Helps Us Markets Rebound
After a tough finish to last week, Wall Street enjoyed a sizeable rebound in trading on Monday morning, with the Dow Jones Industrial Average bouncing 0.8% or 129 points to 16,155 by late morning in New York.
Monday, April 14, 2014 - 00:00
Meanwhile, the broader S&P 500 index advanced by an even greater percentage, gaining 1.0% to 1833.4. The rally was backed by some encouraging earnings from Citigroup and Bank of America and a better-than-expected rise in retail sales last month. JP Morgan’s high-profile miss of forecasts on Friday meant the earnings season got off to an inauspicious start, but solid results from the banks today will help to reassure investors. US retail sales increased 1.1% last month, while February’s change was amended higher to a rise of 0.7% (originally reported as just 0.3%). Though rebounding motor vehicle sales lay behind a significant portion of these increases, there was still an upbeat 0.7% growth in sales once motor vehicles were stripped out of the data.
This is yet another piece of growing evidence adding credence to the contention that consumers were hampered by the heavy winter weather, hence the spring improvement. The strength of this report will raise expectations for first quarter GDP and has helped support the stock market after recent declines. In the forex market, the euro has weakened broadly following comment made over the weekend from senior policy makers at the European Central Bank (ECB) that appeared to suggest a weaker exchange rate may be an indirect objective. Though Mr Draghi was at pains to stress the exchange rate was not a policy target of the ECB, he did say that it was important for price stability – which is a stated policy target. ‘The strengthening of the exchange rate would require, to make our monetary stance equally accommodative, further monetary policy accommodation,’ Mr Draghi said. This raises the possibility of the ECB venturing into the undiscovered country of negative interest rates.Mr Draghi’s comments were reinforced by Christian Noyer, the Governor of the Bank of France, who said that ‘The stronger the euro is, the more accommodative policy is needed’, adding that the ECB has many tools at its disposal if inflation remains low for longer than expected including ‘Lower interest rates, and we can always discuss whether to go further when they are close to zero – long-term refinancing operations for banks, unlimited liquidity supply.’
The combination of the ECB remarks and the strength in the US retail sales helped push EUR/USD down 0.46% to 1.3820 in morning trading in New York in Monday. The pound also gained strongly against the euro, aided by a report from Rightmove plc that claims UK house prices have risen to a record high this month. The IMF last week upped its growth forecasts for the UK economy, adding to the growing pressure on the Bank of England to tighten policy. UK unemployment figures are released on Wednesday and are expected to fall to a rate of 7.1%, according to a survey conducted by Reuters. The Bank of England’s forward guidance specifies 7.0% as a minimum low threshold at which the monetary policy committee would consider raising rates.
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