20160512 – DAILY UDPATE


Stocks were weak yesterday probably because of poor updates from retailers like Macy’s and Gap which paint a worrying picture about the US consumer. The decline in prices was the worst we’ve seen in a month, but from a technical perspective there doesn’t seem to be much to worry about (see below). The S&P continues to trade above support, and the trend remains bullish.


If US consumers are anything like me, there might be a simple explanation for what on the face of it looks like falling consumption patterns. These days I buy everything I can online, and I can’t remember the last time I actually walked into a department store. The chart for Amazon tells the story, bricks and mortar are dying, this is the age of the internet retailer!


So why talk about stocks, when the focus of this blog is currencies? Stocks matter, because currencies are affected by risk sentiment and the general economic environment. If it was indeed the case that US consumers (the engine of global growth, don’t let anyone tell you different!), then that would have negative implications for the world economy. It still may be the case, but the data doesn’t yet justify such gloom. In fact the continued strong performance of oil (see below) is probably a boost to the global economy at this point. After all, it lessens the systemic risk in the oil & gas sector loans market, and doesn’t hurt export dependent developing economies. We’ve already talked about why the disposable income boost from lower energy costs has proved elusive.


What does this all mean? Don’t count on the Federal Reserve to wait too long, if the news about the US consumer isn’t as bad as feared. Furthermore if stocks do stay in a bullish trend the odds of some tightening in the US in a few months will only increase. It means that the odds of a stronger greenback look fairly decent from here. I certainly think that the next big move in EUR/USD looks to be to the downside, but over the next few weeks earnings volatility might keep any trends from taking root.






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