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October US Sales Beat, CPI Misses – USD Sideways as Yields Edge Up

October US Sales Beat, CPI Misses – USD Sideways as Yields Edge Up

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Consumption above expectations despite government shutdown.

- Implication for stronger than expected growth in 3Q’13, boosting US yields.

- USDJPY briefly trades back above ¥100.00.

There’s very clear evidence afoot that the US economy weathered the government shutdown storm in October, after two more series of data confirm the modest resiliency in growth over the past several months. Even as Consumer Confidence plunged in October, consumption perked higher past expectations, suggesting that the economy may be stronger than otherwise assumed.

Notably, US yields have jumped on the data, with the 10-year note yield climbing as high as 2.743% (off the daily low of 2.702%). US yields, especially on the long-end of the curve, have been increasing over the past several weeks and months amid the stream of better than anticipated US economic data:

October_US_Sales_Beat_CPI_Misses_USD_Sideways_as_Yields_Edge_Up_body_Chart_1.png, October US Sales Beat, CPI Misses – USD Sideways as Yields Edge Up

Here’s the data that lifted the US Dollar this morning as yields edged up:

- Advance Retail Sales (OCT): +0.4% versus +0.1% expected, from 0.0% (revised higher from -0.1%) (m/m).

- Retail Sales ex Auto (OCT): +0.2% versus +0.1% expected, from +0.3% (revised lower from +0.4%) (m/m).

- Consumer Price Index (OCT): -0.1% versus 0.0% expected, from +0.2% (m/m); +1.0% as expected, from +1.2% (y/y).

- CPI ex Food & Energy (Core) (OCT): +0.1% as expected unch (m/m); +1.7% as expected unch (y/y).

While the consumption figures were slightly better than expected, the inflation data for October was a touch soft. However, concerns over deflation may be overblown. The core figure, which excludes the more volatile food and energy costs, remained steady. Accordingly, with gas prices falling, the incremental bump in real disposable income likely helped consumption elsewhere overall.

USDJPY 1-minute Chart: November 20, 2013 Intraday

October_US_Sales_Beat_CPI_Misses_USD_Sideways_as_Yields_Edge_Up_body_x0000_i1028.png, October US Sales Beat, CPI Misses – USD Sideways as Yields Edge Up

Charts Created using Marketscopeprepared by Christopher Vecchio

Following the data, the USDJPY initially saw a modest bounce from ¥99.92 to as high as 100.05, but had fallen back to 99.95 at the time this report was written. Gains were modest overall as US yields pulled back (10YY at 2.728% last quote), and with the Federal Reserve’s October meeting Minutes due later today, we don’t expect the data this morning to have a last impact in either direction until the swell of event risk has fully come to pass on Wednesday.

--- Written by Christopher Vecchio, Currency Analyst

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