Consumers stepped back to department stores, furniture outlets, clothing chains and grocers during September creating a softer decline in retail sales than was anticipated. Analysts had expected a sharper retrenchment after the termination of the government’s support for the auto industry. After a 2.2% gain in August sales declined by 1.5% for September, but managed a 0.5% decline when autos are stripped out. The encouraging news on the health of the consumer was one factor in supporting a vibrant stock market on Wednesday. The flipside was a fall in the value of the dollar to a 14 month low against a basket of major trading partners’ currencies.
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The retail sales reading was encouraging given the worry that consumers continue to repay debt and are wary about deepening job losses. Remember that the rate of unemployment is very likely to exceed 10% before the labor market recovers. The government and economists should be pleased to see evidence that consumption is recovering beyond the impact of various government stimulus measures.
In response to strong equity index futures, treasury yields were higher and therefore somewhat supportive to the dollar. However, the current weight of opinion is that there will be no near-term movement from the Federal Reserve, which means that the yield curve may become steeper, but that official short rates are set to remain destitute for some time to come. The dollar lost more ground and the euro advanced to $1.4926 at one point, again that’s a 14-month low point for the U.S. dollar.
Stock markets around the world glowed after chip-maker Intel predicted strong fourth quarter revenues. The party in the equity markets continues for investors and as such that instills confidence that riskier opportunities around the world can be placed at a relatively lesser risk. The dollar continues to suffer at the hands of this premise.
Other data released ahead of the U.S. session indicated that the Chinese economy was in marginally better shape, which acted as yet another prop from commodity currencies. Underlying demand for raw materials continues to elevate an Australian dollar still swaggering from a recent quarter point increase in official yields.
Chinese trade data showed that export volume for September was 15.2% lower than a year ago but declined at its slowest annual pace in nine months. Imports were a mere 3.5% lower than September 2008 making this decline the least in 11 months. The data buoyed Shanghai, Asian and Pacific stock markets and revived commodity prices yet again.
The Aussie dollar reached 91.50 U.S. cents and remained firm Wednesday on account of a rise in iron ore imports during September by China. Imports rose by 30% while copper imports unexpectedly rose by 23%. Meanwhile a survey of consumer confidence from Westpac Banking Corporation and the Melbourne Institute today revealed confidence to be at a two-year high, further confirming the bull view on the economy.
The crude oil market continues to be bolstered by predictions of a return to ever-increasing demand as the barometer of global health improves. When you take one part dollar weakness, one part crude oil strength and throw in a whiff of commodity price gains, the concoction makes for an explosive rally in the value of the Canadian dollar, which continues to inch towards parity with the U.S. dollar. Today the so-called loonie has to 97.21 U.S. cents.
The dollar fell sharply mid-morning against the Japanese yen from close to ¥90 per dollar to ¥89. The same volatility wasn’t apparent across any other currency pair at the time. Earlier Japanese data revealed a slower decline in the pace of producer prices across Japan, which fell 7.9% in September compared to a fall of 8.5% in August.
The pound sterling rallied above $1.60 for several hours earlier this morning on the view that an extension to the asset purchase program won’t necessarily be seen as a sign of weakness. However, at around the same moment as the yen roared versus the dollar, the pound fell sharply against the dollar to stand at $1.5932. The pound also lost ground to the Japanese yen at ¥142.34 today.
Andrew Wilkinson is a senior market analyst at Interactive Brokers. Reach him at firstname.lastname@example.org