Markets were waiting for the US retail sales report this week as it shows the health of the consumer better than any other indicator. So, there was some decent price action following some strong numbers for July, as sown below. The report initially led to a rise in Treasury yields and the USD, but these gains were short-lived. After the data release, the US 10-year yields reached 4.27%, the highest since October, but quickly retreated to 4.20%.
The US dollar followed a similar pattern, with the USD/JPY pair rising to 145.86 but failing to surpass the European high and subsequently declining. EUR/USD has been showing weakness for several weeks and dipped below 1.09 briefly after the publication, but has reversed and is trading at 1.0950s now.
We decided to sell AUD/USD just now, as it continues to be the weakest of the risk currencies, affected by softer Chinese data as well. WTI Crude Oil also slipped lower to $81 on my platform, but is now almost 100 pips higher. We are long on Oil after the retail sales report.
One possible factor influencing the restraint on both yields and the dollar could be the performance of equities. S&P 500 futures experienced a decline of 28 points, likely due to negative sentiment regarding China’s economic outlook following a series of disappointing data points earlier in the day.
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The higher reading on the control group is the fourth month in a row of gains and highlights the ongoing strength of the US consumer. It’s the best reading since January. This should help to boost Q3 US GDP forecasts, which are already looking rosy.
There is plenty to worry about in the global economy but the US consumer isn’t one of those things. Sales were up 2.3% y/y in July, though that’s not adjusted for prices. Furniture and electronics sales continue to be soft but that’s because so much of that spending was pulled forward during the pandemic.
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