The previous Friday’s strong US payrolls report has become a somewhat hazy memory after a much softer than expected retail sales report on Friday that challenged prevailing confidence that the US consumer has entered Q3 in rude health. In truth, the flat month-on-month readings for both the headline and so-called Control Group readings (the latter feeding the retail component of GDP and which makes up about 50% of consumption) suffered both from a very strong Q2 (revised higher on Friday, ex-autos in June now +0.9%) and a slump in petrol prices depressing sales values.

That said August preliminary consumer sentiment also underwhelmed while PPI readings were much weaker than expected. The dollar swooned on the retail sales report before an afternoon recovery, bonds yields fell by more than 5bps across the curve before lifting slightly into the close, while equities finished down smalls.

In FX, the narrow DXY dollar index ended 0.14% lower at 95.68 having slumped from 95.75 to 95.25 straight after retail sales and PPI. The broader BBDXY ended just 0.05% down on the day while against Asian EM, the dollar rose slightly, ADXY -0.2%.  In individual currencies, JPY was strongest, USD/JPY -0.65% to Y101.30, and AUD the weakest, -0.61% to 0.7652.  CAD gained 0.3% and NOK another 0.5% with both benefiting from further gains in oil prices.

In stocks the S&P finished just 0.1% down at 2182.9 after Thursday’s new record high. The VIX finished in NY -0.13 to 11.39. In bonds, Treasury yields rebounded slightly in late trade but finished between 3.6 and 4.7bps lower (2s -3.6bps to 0.7221% and 10s -4.6bps to 1.5135%).

Commodities saw gold lose $3 to $1336 (unchanged on the week) while oil continued to rally on speculation of a forthcoming OPEC agreement on production cuts, WTI +$1.0 to $44.49 (+$2.69 on the week) and Brent +$0.93 to $46.97 (+2.72 on the week).  The LMEX index ended down 1.35% while iron ore firmed by $1.01 to $60.37 (-$0.37 on a week ago).

Fed speak on Friday came from St Louis Fed President James Bullard in a local radio interview and who repeated his ‘one then done’ view of Fed policy, saying ‘We think the regime will persist so that the policy rate can stay about flat over the policy horizon with just one rate increase”.

So to summarise the data, U.S. July retail sales saw headline 0.0% (0.4%E, 0.8%P revised up from 0.6%). Ex-autos sales were -0.3% (0.1%E, 0.9%P revised up from 0.7%). ‘Control Group’ sales were 0.0% (0.3%E, 0.5%P).

The University of Michigan preliminary August consumer sentiment came in at 90.4 (91.5E, 90.0P). 5-10 year inflation expectations were unchanged at 2.6%, 1-year 2.5% down from 2.7%. The Fed pays more attention to the 5-10 year read.

U.S. July PPI Final Demand was weak at -0.4% M/M (0.1%E, 0.5%P). Core PPI was -0.3% (0.2%E, 0.4%P) for 0.7% Y/Y down from 1.3% in June. Price discounting in the auto sector and, according to one of advisory firm we respect, an inexplicable compression in margins (probably not to be repeated) accounted for the weakness.

China’s July money supply data published late Friday showed Aggregate Social Financing at just CNY487.9bn down sharply from 1,629.3bn in June and 1,000bn expected.  New Yuan loan 463.6bn down from 1,380bn and 850bn expected.  M2 money supply 10.2% Y/Y (11.0%E, 11.8%P).

Coming Up

Locally, wages on Wednesday and Thursday’s Labour Force report will be key; RBA Minutes will get some attention but unlikely to offer too much new.

Offshore, it’s US housing reports (NAHB and housing starts, today and tomorrow respectively) then CPI and industrial production (both Tuesday) followed by FOMC minutes Wednesday and the Philly Fed survey Thursday.  Several Fed speeches are under the spotlight. Japan has its first estimate of Q2 GDP this morning, seen rising 0.2% in Q/Q terms and 0.7% y/y down from 1.9% in Q1.

Conflicting forces look set to operate on AUD and NZD this week. USD sentiment is on the back foot again after Friday’s data despite which both crosses closed on Friday lower on the day and suggests we will struggle to re-test last week’s highs (in AUD around 0.7750). Again this, Friday’s weak China credit data compounds the slowdown signal from the earlier July activity readings while concerns over future China FDI inflows to Australia after last Thursday’s Ausgrid ruling and China’s public reaction, can also weigh on sentiment. AU employment data is a wild card for Thursday. Overall, AUD may struggle a bit this week, but with little reason at this stage to suggest much deeper corrections lower.

Overnight

On global stock markets, the S&P 500 was +0.39%. Bond markets saw US 10-years -4.58bp to 1.51%. In commodities, Brent crude oil +6.63% to $46.97, gold-0.6% to $1,336, iron ore -0.3% to $60.37. AUD is at 0.7659 and the range since Friday 5pm Sydney time is 0.7647 to 0.7723.

For full analysis, download report:

•  Markets Today:  15 August 2016 (PDF, 94KB)

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