US Retail Sales To Print Soft Again
Swissquote Bank Ltd | May 13, 2016 07:34AM ET
US retail sales to print soft again (by Yann Quelenn)
Will US retail sales rebound today? After the very disappointing decline of 0.3% m/m for March, which triggered growing concerns of a declining momentum, markets will be heavily focused on this new batch of consumption data. Last month, the automobile industry was the major underperformer. The drop in car sales was entirely unexpected. An adverse result would weigh on US growth as consumer spending accounts for at least two-thirds of the GDP.
In our view, we still believe that the true state of the US domestic economy is overestimated and that there are underlying difficulties. The unemployment rate, despite being very low, has not managed to push inflation and consumption so far. However, while it may be true that the US is at full employment, part-time jobs figures look increasingly significant. This correlates with Janet Yellen’s several statements over the past six month that the part-time workforce is at “very high levels”. Part-time is also synonym of precariousness and it sounds logical therefore that consumption will suffer from this new American labour structure.
We think that retail sales will continue to feel the pinch in the mid-term. There is no sustainable recovery in sight and we reiterate our view that EUR/USD should continue to increase, despite European uncertainties, as markets have not yet fully priced in a no rate hike scenario for this year.
BoT clears way for carry traders (by Peter Rosenstreich)
The Bank of Thailand left its policy rate unchanged at 1.50%, in line with expectations in a unanimous decision. The central bank indicated downside risk to growth yet left economic forecasts unchanged after cutting outlook to 3.1% from 3.5% at the prior meeting. Sluggish export markets and political uncertainty, which is slowing investment sentiment remains a heavy weight on expansion. Drought in Thailand has hampered agricultural sectors, constricting consumer behavior in key regions. However, tourism remains a supportive driver as growth in tourist arrivals are up 14.8% y/y. In addition, the increase in public infrastructure investment has accelerated providing a backstop for growth. Inflation forecasts are expected to come in closer to the lower band of the central bank’s 1-4% target this year. Headline inflation should recover from the weak Q1 as pressure from food prices and higher oil push rates from negative territory. The dovish tone, combined with easing inflation pressures, suggests that additional interest cuts are possible. However, The BoT will opt to wait-and-see as broader global risks could have a deeper impact on the economy rather than rushing in to micro tune a relatively stable environment.
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Political risk remains a concern to the BoT. The referendum on the new constitution is expected to be held August 7th. Critics continue to suggest that the document favors current military rule, however, passage in theory lead to civilian general elections. Given Thailand’s tumultuous political past until the constitution’s uneventful passage investors will be cautious.
Once again the THB will be critical in the outlook for economic and monetary policy developments. The BoT highlighted that the THB’s recent strength was not helpful to any recovery and that it remains vigilant of unnecessary appreciation. The BoT has also clearly indicated their readiness to intervene; a bullish outlook due to a flood in foreign reserves is making members uncomfortable. Moving forward, the BoT will likely keep their accommodative policy through a weaker THB rather than cutting interest rates. Given our dovish fed expectations and balanced economic outlook in Thailand we suspect that THB remains a solid carry trade
Please note that Monday 16th May is a Swiss holiday therefore no reports will be released.
The Risk Today
Peter Rosenstreich
EUR/USD is declining and volatility is increasing slightly. Stronger support can be found at 1.1217 (24/0452016 low). Hourly resistance is located at 1.1479 (06/05/2016 high) and stronger resistance lies at 1.1616 (12/04/2016 high). Expected to show further weakness. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1746 ( holds. Key resistance is located at 1.1640 (11/11/2005 low). The current technical appreciation implies a gradual increase.
GBP/USD has broken support implied by the lower bound of the uptrend channel. Hourly support is given at 1.4300 (21/04/2016 low) while hourly resistance can be found at 1.4543 (06/05/2016 high). Stronger resistance is located at 1.4770 (03//2016 high). Expected to show deeper selling pressures. The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.
USD/JPY is pausing below 110. Hourly resistance can be found at 109.40 (12/05/2016 high) and stronger resistance is given at 111.91 (24/04/2016 high). Hourly support lies at 106.25 (04/05/2016 low). Expected to show further buying pressures. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).
USD/CHF is trading without strong momentum. Hourly resistance can be found at 0.9797 (22/04/2016 high) while a break of hourly support is located at 0.9652 (06/05/2016 low) would confirm deeper selling pressures. Indeed the medium-term momentum is bearish. Expected to show further consolidation. In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.
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