US CPI And Retail Sales Undermine Notions Of Fed Hikes

Originally published by AxiTrader h2 Market Summary/h2

US stocks bounced back last night (S&P 500 +0.86%, and Dow Jones Industrial Average +0.9%) after weaker than expected retail sales and CPI Friday reduced the chances of aggressive Fed rate hikes. I’m not sure I agree on that given the Q1 weak GDP wouldn’t exactly be unexpected in the Eccles Building.

But hey, the market and price action, is what’s relevant.

That means the ASX could have a resurgence of the bulls who proved a little frail before Easter. While the better tone the US stock market surge gives investor risk appetite a lift which will help the Aussie dollar, hurt the yen and gold.

• S&P 500 +20 (0.86%) 2349 (7.15 Sydney)
• Dow Jones Industrial Average +183 (0.9%) 20636
• Nasdaq 100 +52 (0.89%) 5,856
• SPI 200 5,852
• AUD/USD 0.7589 +0.81%
• Gold $1284 -0.02%
• WTI Oil $52.75 -0.81%

• Ahem, attention Trumponomics, Traumpflation stock market bulls. US Treasury Secretary Steve Mnuchin has fessed up that the chance of getting tax cuts through by his previous August estimate is “highly aggressive to not realistic at this point”. What’s telling about this for stocks is that hopes of a 2018 impact on stocks – which helped fuel the rally – now will need to be pushed back. So if the data slips in the US and around the globe – as it has recently – then the chances of a continuation of the recent downtrend in the S&P 500 are high.

• As noted above stocks in the US lifted last night – no doubt as folks scale back expectations of Fed rate hikes – but this overall down drift endures. Here’s the chart.

• Given the weaker than expected March CPI (2.4% yoy v 2.6% exp) and retail sales (-0.2% v -0.1%) expectations of the print for Q1 GDP in the US when it released on the 28th of April were lowered again. The Atlanta Fed index has been downgraded to just 0.5% annualised (that’s almost no growth in the quarter when you deconstruct it) while the NYC Fed’s estimate still says a little more than 2% but itself has been downgraded about half a per cent recently.

Get The App

Join the millions of people who stay on top of global financial markets with Investing.com.

Download Now

• And As I wrote last week, the rally in US interest rate markets is a warning for stocks here in Austr5alia and around the globe. Last night the 2’s and 10’s drifted a little higher with stocks in thin holiday trade – the 2 year treasury is at 1.20% while the 10 year is at 2.25%. I’ll be watching 10 years closely to see how all this ties together over coming days and weeks.

• The French election is really tightening up as we head towards the run-off election this weekend. The latest polls still show that Marin Le Pen and Emmanuel Macron are the front runners. But both Francois Fillon and Jean-Luc Melenchon are still in the race just a few per centage points behind. That makes this first round of voting this weekend too close to call realistically. That is a huge risk for the euro, forex markets more broadly, and financial markets globally.

• After last week’s solid trade data China’s Q1 GDP, released yesterday, showed the year on year rate of 6.9%. That’s a little stronger than the 6.8% growth rate pundits had forecast and showed that growth is once again resting on the old drivers of steel and stimulus. Yesterday’s release of retail sales for February at +10.9% and industrial production +7.6% both beat expectations. It is my fervent belief Chinese authorities will do their darnedest to keep growth as strong as possible in 2017. It’s just too important a year for the president and Chinese politics.

• Speaking of China a couple of other important things popped up in the past couple of days. Reuters reported an adviser to the4 PBOC said China’s RRR for banks could be cut because overall reserves in the system had fallen as a result of FX outflows. Separately Liu Shiyu, chairman of the China Securities Regulatory Commission (CSRC) knocked China’s stock markets for six yesterday with his comments that there needs to be a crackdown on speculation. Reuteres reported Liu said “(We) must further liberate thinking and have the courage to brandish the sword, and defend legal oversight authority ... to resolutely combat behaviour that disturbs market order and in no way be lenient". The Shanghai Composite ended the day 0.75% lower at 3221.

• In Japan BOJ Deputy Governor Hiroshi Nakaso, floated the idea of how the BoJ might exit stimulus and the discussion the bank is having at the moment on that topic. He noted at the present time it is still appropriate for the BoJ to be focusing on the stimulus itself. But it’s clear – discounting the RBA – the globes central bankers are thinking about exiting global monetary accommodation.

• I haven’t forgotten the Korean Peninsula, or the sabre rattling. Nor have I forgotten the failed test over the weekend by the North Koreans of a ICBM. Pyongyang is getting more belligerent and US vice-president Pence warned North Korea the “era of strategic patience is over”. So yesterday we saw USDJPY hits it’s lowest level in month before stabilising. But this remains a potential flashy point.

• Likewise so does Turkey. Even though president Recep Tayyip Erdogan won his referendum - to change the Turkish system of government to an Executive branch style and do away with the role of prime minister thus centralising power in the presidency – it was a very close margin and European vote monitors have questioned it. Clearly though – based on his actions before the vote – he doesn’t care what Europe says. Turkey looks like its heading towards the Egyptian model of government.