US Retail Sales Report on the Radar
Earlier today, the preliminary German GDP reading showed that the economy grew at a steady yet modest pace in the fourth quarter of 2015, primarily due to robust domestic demand. In a short while, market attention will be on the Euro zone GDP data which is anticipated to show that the year-on-year GDP reading slowed in the final three months of last year. A soft result will likely heighten expectations of the European Central Bank's (ECB) stimulus expansion in its policy meeting in March.
In the UK, the just out data showed construction output slipped more than estimates for the fourth quarter, despite a December pick-up. Later in the day, spotlight will be on US retail sales figures which will give clues to the state of consumer confidence in the world’s largest economy.
Pound Sterling – UK Markets
Sterling has mainly been unattractive so far this week due to exceedingly disappointing domestic economic data releases and looming fears of Britain exiting the European Union. Yesterday, the European negotiators held crunch talks to discuss the reform demands proposed by the Britain’s Prime Minister, David Cameron, in a bid to finalise a deal to keep the UK in the EU. Though good progress was made on technical and legal clarifications, negotiators failed to reach a breakthrough on the key issues. The UK PM has asked for a deal in the upcoming summit at the end of next week that will allow him to hold a vote as early as June. The Pound will likely remain on choppy grounds until a clear date for the UK referendum vote is set.
Data released earlier in the week had showed that both industrial and manufacturing output saw their biggest annual declines in December since mid-2013. The fourth quarter initial growth estimates might be revised downwards after the just out UK construction output fell more than expected in the fourth quarter, following a decline in infrastructure investment.
US Dollar – US Markets
The US Dollar edged higher against the shared currency this morning ahead of a report on retail spending in the US for January. Expectations are for both the headline and core readings to bounce back after unexpectedly falling in December. Earlier this month, US personal income had printed better than expected figures for December. But, this failed to lift personal and construction spending for December as investors chose to save their earnings. Rising wages, together with falling oil prices contributes to higher discretionary income for consumers. Today’s monthly retail sales update will show whether consumers chose to save the higher income in December or spend.
The greenback traded lower against most of the major currencies yesterday after the US Federal Reserve (Fed) Chair, Janet Yellen, in her testimony, signalled that a further rise in interest rates could be delayed amid global growth concerns. However, the US Dollar trimmed some of its losses against the majors after data showed that claims for initial unemployment benefits in the US fell more than anticipated last week.
Euro – European Markets
The shared currency lost ground against the greenback this morning, with the currency pair trading below the 1.13 mark. Germany kicked off a day of Gross Domestic Product data from across the Euro zone earlier today. Official data showed that growth in the largest economy of the Euro zone was modest at the end of last year, as the economy showed resilience amid an emerging market slowdown and weak exports. Moderate growth in Germany was largely supported by robust domestic demand. Public spending sharply increased as falling energy and fuel prices boosted disposable income.
In a short while, an additional growth estimate of the Euro zone economy is due for release. Markets anticipate that the region-wide GDP reading will show that growth slowed in the fourth quarter from the previous year, indicating that the ECB will be forced to act again in its next monetary policy meeting in March. Also, on tap today will be Euro zone’s industrial production data which is expected show some improvement in the last month of the previous year.
Other Currencies – Highlights
The Australian Dollar nudged lower against the US Dollar today after the Reserve Bank of Australia (RBA) Governor, Glenn Stevens, in his testimony to Australia’s Parliament stated that further accommodative policy may be used, if needed. His comments indicated that it is unlikely for the RBA to increase interest rates any time soon. However, the Governor retained the flexibility to ease further. Additionally, the RBA Governor painted a moderately positive picture of the economy as he downplayed recent financial market volatility amid ongoing concerns about global economic growth. He said that the Australian economy has shown signs of gradual improvement on unexpected labour market strength, despite the challenges of falling terms of trade and a wind-down in mining-sector investment.
In economic news, earlier today data showed that Australia’s home loans rose, but at a slower than anticipated pace in December. Amid no other domestic economic releases scheduled in the session ahead, investors will eye the US retail sales report and preliminary consumer confidence data released by the Reuters/Michigan for further direction.