In the FX market the pound slipped against the dollar despite evidence of healthy UK retail spending.
By Peter Martin
Tuesday, May 26, 2015
The Confederation of British Industry (CBI) released its Distributive Trades Survey (a report that seeks to gauge near-term trends in the UK retail and wholesale distribution sector) for May and the headline level was well up from April. The percentage of retailers reporting an increase in sales volumes was 51%, soaring in comparison to the 12% reported in the month prior. Orders were strong, while retailers also indicated a positive outlook for the month ahead. GBP/USD slid 0.48% to 1.5394, though the movement in that exchange rate is as much to do with the strength of the dollar rather than weakness in the British pound.
With worries over Greece and now support swelling for anti-austerity parties in Spain, the euro has taken another knock today, which has helped to boost flows into the dollar, the global reserve currency of choice. The dollar has also benefitted from signs of US inflation at the core level and comments from Fed Chief Janet Yellen on Friday that kept a 2015 rate hike in the frame. Headline inflation in April was depressed by energy prices, but the core US CPI rose 0.3% on the month, for a year-on-year change of 1.8%. Headline inflation looks more deflationary than anything else at the moment, but given the robust nature of oil prices in May, that could be in flux. EUR/USD fell 0.63% to 1.0910.
US durable goods orders dropped 0.5% in April, but the decline was driven by a fall in aircraft orders (an unpredictable and irregular component at the best of times) and things look a lot healthier once transportation is stripped out, orders showing a 0.5% rise ex-transportation. It is never wise to read too much into just one month’s data from such a volatile report as durable goods orders, but a pick-up in the core level is nevertheless an encouraging sign for the beleaguered manufacturing sector.
One of the issues affecting US manufacturers is dropping exports levels, driven by the strength of the dollar and Tuesday’s rise in the dollar was also a factor weighing on the stock market, as stocks opened lower. Shortly after the opening, the Dow Jones was off by 42 points or 0.23% at 18,190 and the S&P 500 Index slid the same percentage to 2120.5.
Tuesday is set to be a busy day for economic news: a couple of housing reports were released before the market opened; later we have the PMI services flash for May and more regional manufacturing surveys from the Fed for May. At the end of the week we have revised first-quarter GDP data. The initial estimate showed growth of just 0.2%, but the revision is expected to be even worse, possibly quite deep into contractionary territory.
The housing reports showed price gains, but the gains weren’t wholly convincing. The S&P/Case-Shiller 20-city home price index was the more bullish of the two, rising a seasonally-adjusted 1.0% in March, just ahead of expectations, while February was revised up from an originally-reported +0.9% to +1.2%. Year-on-year the index is up 5.0%, the same change as seen in the month prior. The Federal Housing Finance Agency (FHFA) house price index was less convincing, rising just 0.3% in March (versus a consensus estimate of 0.7%), while February was revised down to +0.6% from +0.7%.
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