Point, Taper: Improved July Retail Sales Report Lifts US Dollar as Yields Jump
THE TAKEAWAY: Headline figure misses but prior revisions and beats on core readings gives July report overall positive tone > Consumption trends in US remain bolstered despite fiscal headwinds, weak wage growth > Effective notch in the ‘taper QE3 in September’ column > USDJPY BULLISH
US economic data has been mixed a bit of late (especially on the ever-important inflation and labor market fronts), but the release of July consumption figures has lifted the tone regarding the US economy. The July Advance Retail Sales report showed that consumption remains strong in the near-term, though the uptick in US interest rates may be having an adverse impact on automobile sales.
The headline figure came in slightly weaker than expected at +0.2% m/m, but the prior revision up by two-tenths to +0.6% m/m negated the disappointment. The major improvement seen – and perhaps a better pure indicator of US consumption – was in the Sales ex Auto figure, at +0.5% m/m; both the Sales ex Auto June and July figures were revised higher by +0.1%.
US Treasury yields have jumped on the news (the 10-year note yield increased from 2.673% to 2.693% at the time this report was written), while precious metals have fallen, and the US Dollar has rallied – a clear indication of investors realigning their bias towards the Federal Reserve tapering QE3 in September. Here are the figures stoking the shift in sentiment:
- Advance Retail Sales (JUL): +0.2% versus +0.3% expected, from +0.6% (revised higher from +0.4% (m/m)
- Sales ex Auto (JUL): +0.5% versus +0.4% expected, from +0.1% (revised higher from 0.0%) (m/m)
- Sales ex Auto & Gas (JUL): +0.4% as expected, from 0.0% (revised higher from -0.1%) (m/m)
USDJPY 1-minute Chart: August 13, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
Following the report, the USDJPY advanced from ¥97.99 to as high as 98.23, before falling back to 98.16, at the time this report was written. Similar price action was observed in the other components of the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR), with: the EURUSD falling from $1.3291 to 1.3250; the AUDUSD falling from $0.9134 to 0.9105; and the GBPUSD falling from $1.5463 to 1.5438.
--- Written by Christopher Vecchio, Currency Analyst
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